Student loan freeze ‘dramatically’ boosted credit scores: study
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For the study, researchers placed borrowers into three categories: subprime borrowers, those whose credit scores fall below 620, borrowers with credit scores from 620-719, and super-prime borrowers who boast scores above 720.
They found “significant flows” of loan borrowers moving into a higher credit score group, with more than 21 percent changing groups.
Borrowers who were delinquent in their loan payments prior to the pandemic saw the largest increase in credit risk scores, with a median increase of more than 100 points.
Student loan borrowers “dramatically” improved their credit scores during the pandemic-related pause on student loan payments beginning in 2020, according to a new study.
For the study, researchers from the Center for Microeconomic Data at the Federal Reserve Bank of New York placed borrowers into three categories: subprime borrowers, those whose credit scores fall below 620, borrowers with credit scores from 620-719, and super-prime borrowers who boast scores above 720.
They found “significant flows” of loan borrowers moving into a higher credit score group, with more than 21 percent changing groups.
Overall, 79 percent, or 30 million borrowers, saw improvements to their credit scores.
Borrowers who were delinquent in their loan payments prior to the pandemic saw the largest increase in credit risk scores, with a median increase of more than 100 points.
The Biden administration previously announced that all borrowers currently in default would be granted a “fresh start” once payments resume – a move experts say would cut off penalties imposed on borrowers that could help them pay their bills and lift their credit scores.
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The federal moratorium on student loan payments, first enacted during the Trump administration and extended throughout Biden’s first term, is currently set to expire at the end of August.
Biden has previously signaled he is considering forgiving up to $10,000 for all federal student borrowers but has yet to make a formal announcement on either debt cancellation or extending the pause.
“The Department of Education will continue to assess the impacts of the COVID-19 pandemic and the economy on student loan borrowers. We will communicate directly with borrowers about the end of the payment pause when a decision is made,” a department spokesperson told The Hill late last month.
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