THE AMERICA ONE NEWS
May 31, 2025  |  
0
 | Remer,MN
Sponsor:  QWIKET 
Sponsor:  QWIKET 
Sponsor:  QWIKET: Elevate your fantasy game! Interactive Sports Knowledge.
Sponsor:  QWIKET: Elevate your fantasy game! Interactive Sports Knowledge and Reasoning Support for Fantasy Sports and Betting Enthusiasts.
back  
topic
Timothy P. Carney, Senior Columnist


NextImg:Student debt pause was a stimulus for private lenders

When borrowers had to start repaying their student loans last week, some warned that this would lead to folks missing mortgage payments, car payments, or credit card payments — or force these people to borrow in more expensive ways.

Indeed, the student loan pause was described as “emergency relief” during, and long after, the pandemic and the lockdowns threatened to throw millions of people out of work. Policymakers who were locking down the economy worried that borrowers would become delinquent on their loans because they would be unable to work.

IF RFK JR. GOES INDEPENDENT, DOES THAT HELP BIDEN OR TRUMP?

When Biden extended the moratorium, it was in order to “transition borrowers back into repayment and reduce the risk of default and delinquency.”

But there is zero evidence that the student debt repayment pause reduced default and delinquency on anyone’s bills. Instead, it appears to have increased indebtedness. That is, the student borrowers whose repayments were paused borrowed more money (and on net increased their debt) during the pause than the student borrowers whose payments were not paused.

That’s the finding of a study three University of Chicago scholars published in May.

The study took advantage of the fact that before President Barack Obama nationalized the entire student loan industry, some student loans were owned by Uncle Sam, while other loans with identical terms were owned by private banks. The Trump and Biden administrations were only able to pause repayment on the federally owned loans.

The scholars studied the credit activity of borrowers benefiting from the pause and compared them to the credit activity of those not benefiting from the pause. What they found:

“Comparing borrowers whose loans were frozen with borrowers whose loans were not frozen due to differences in whether the government owned the loans, we show that borrowers used the new liquidity to increase borrowing on credit cards, mortgages, and auto loans rather than avoid delinquencies.”

Specifically, they concluded, “We see little effect, however, on delinquencies for non-student loans.”

That is, the effect of the pause was not helping people pay their existing bills — it was encouraging people to take on new bills. That is, the student loan pause did not function as emergency relief. It functioned as a stimulus — which means it fueled inflation.

The authors write: “We estimate that the student debt payment pause immediately increased consumption, as borrowers used the new liquidity to increase borrowing on credit cards, mortgages, and auto loans….”

CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER

Increasing consumption power throughout 2020 and 2021, at a time when services and manufactured goods became more scarce, undoubtedly fueled inflation, as more money was chasing fewer things.

Pausing student debt payments was an understandable response to the lockdowns, but it proved to be a mistake — except for private lenders, who got a ton of new customers.