Trump keeps $1.2 trillion of student-loan debt on ice

Trump keeps $1.2 trillion of student-loan debt on ice
The measure would postpone both repayments and the accumulation of interest through year-end on loans held by the federal government
AUG 11, 2020
By  Bloomberg

President Donald Trump’s decision to extend a student-loan freeze will take away a financial risk for tens of millions of U.S. households that now won’t have to resume paying back about $1.2 trillion of debt until at least 2021.

The measure, one of four executive actions Trump took Saturday, keeps both repayments and the accumulation of interest on hold through the end of this year. An earlier waiver, approved by Congress in March as part of the government’s main pandemic relief bill, had been set to expire at the end of September.

The order applies to loans held by the federal government, which make up some three-quarters of the country’s $1.54 trillion in student debt. The burden is spread across age groups, since millions of older Americans took loans to help out family members.

A Federal Reserve study in 2019 found that the typical amount of education debt was between $20,000 and $25,000, carrying a monthly payment of between $200 and $300. The New York Fed estimated earlier this year that Americans would save a total of about $7 billion a month while the freeze was in place.

Student debt has turned into a hot-button political issue, especially among younger voters, as it has increased by about $1 trillion since 2007 to become the second-largest slice of household obligations after mortgages.

Student Loans by the Ages

Some 43 million people, about one in eight of the population, hold student loans. Roughly 20% were behind on payments before the pandemic struck, and the rate was proportionally higher among Black and Hispanic borrowers.

The reprieve doesn’t apply to those who have private student loans, about a quarter of the total. But some of those borrowers may have reached forbearance arrangements too, according to the New York Fed. In a report last week it said 88% of student-loan borrowers had a scheduled payment of zero in June.

The waiver also shields borrowers by effectively resetting credit scores, with delinquent loans now being reported as current. As a result, the average credit score of all student loan borrowers rose to 656 in June from 647 in March, according to the Fed.

Latest News

Integrated Partners, Kestra welcome multigenerational advisor teams
Integrated Partners, Kestra welcome multigenerational advisor teams

Integrated Partners is adding a mother-son tandem to its network in Missouri as Kestra onboards a father-son advisor duo from UBS.

Trump not planning to fire Powell, market tension eases
Trump not planning to fire Powell, market tension eases

Futures indicate stocks will build on Tuesday's rally.

From stocks and economy to their own finances, consumers are getting gloomier
From stocks and economy to their own finances, consumers are getting gloomier

Cost of living still tops concerns about negative impacts on personal finances

Women share investing strengths, asset preferences in new study
Women share investing strengths, asset preferences in new study

Financial advisors remain vital allies even as DIY investing grows

Trump vows to 'be nice' to China, slash tariffs
Trump vows to 'be nice' to China, slash tariffs

A trade deal would mean significant cut in tariffs but 'it wont be zero'.

SPONSORED Compliance in real time: Technology's expanding role in RIA oversight

RIAs face rising regulatory pressure in 2025. Forward-looking firms are responding with embedded technology, not more paperwork.

SPONSORED Advisory firms confront crossroads amid historic wealth transfer

As inheritances are set to reshape client portfolios and next-gen heirs demand digital-first experiences, firms are retooling their wealth tech stacks and succession models in real time.