Leaving Them Hanging: Student Loan Forbearance, Distressed Borrowers, and Their Lenders

Multiple extensions of the federal student loan forbearance program that began in March 2020 resulted in a temporary payment pause that lasted more than 3 years. We examine the impact of long-term forbearance on the evolution of borrowing by distressed individuals. Compared to distressed borrowers not in forbearance, we observe a 13.4-point credit score increase within a year of forbearance, followed by 12.3% more credit card debt and 4.6% more auto loans, but significantly less total mortgage debt. By year 3, student loan balances are 12.1% higher for the forbearance sample and delinquencies on nonstudent debt are also higher. In the absence of policy interventions, our results suggest that the extended breathing room that the program allowed could accelerate post-forbearance financial distress.