Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments August 6, 2023 erstellt
Description:
Multiple extensions of the federal student loan forbearance program since March 2020resulted in a temporary payment pause that lasted more than 3 years. We examine theimpact of long-term forbearance on the evolution of borrowing by distressed individuals.We observe substantial increases in credit scores within six months of forbearance.This credit score improvement is followed by increases in credit limits and new creditcards that allowed distressed borrowers to take on 12.3% more credit card debt relativeto borrowers whose student loans were not in forbearance. Credit card borrowing isincreasing and is being supplied mainly by banks, through both new and existing cards.Borrowers in forbearance also accumulate 4.6% more in auto loans and significantly lesstotal mortgage debt (driven by new mortgages). Auto loans are primarily driven by newauto loans, with non-banks serving as the most significant suppliers of new auto debt. Ascredit card and auto borrowing continue to increase, distressed borrowers in forbearanceare beginning to fall behind on their nonstudent debt payments at higher rates, exposinglenders to losses. Moreover, after 3 years of forbearance, distressed federal student loanborrowers’ student loan balances are 12.1% higher than distressed borrowers whose studentloans are not in forbearance. When forbearance is lifted, our results suggest thatthe extended breathing room that the program allowed may accelerate postforbearancefinancial distress