Why is 'Forbearance' the Term of the Day?

Back in August, President Biden had announced the extension of the COVID-19 forbearance period for student loans to Dec. 31, 2022, in addition to canceling up to $20,000 in federal student loans for millions of borrowers. Since then, companies managing the U.S. Department of Education’s portfolio of student loans have received an overwhelming amount of refund requests from borrowers who made payments during the pandemic pause.

While education debt forgiveness itself is expected to have a minimal impact on the stock market, investors may still want to pay close attention to the end of student loan forbearance. The payment pause on student and other kinds of loans may distort the state of consumer credit. Investors who still have student debt, even after forgiveness, will have to start (or resume) making payments by the end of the year, which could also leave less money for saving, spending, or investing.

According to the Department of Eductation, any federal student loan payments (including auto-debit payments) made during the pandemic payment pause, which began on March 13, 2020, can be refunded. And while a majority of borrowers might not need refunds, approximately 9 million people have taken advantage of interest-free repayments throughout the two-and-a-half year pause.

-Ward