Deferred Loan Payments: When Will Lenders Say 'Pay Up'?
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How many Americans have paused loan payments since the coronavirus began?
Here's your money briefing for Friday, June 19th. I'm J.R. Whelan for The Wall Street Journal. A lot of households are having to make some tough financial decisions during the recession. And one of the obligations that's fallen low on the priority list for many is paying off debt, especially student loans.
So we're still in this state where it's kind of month by month, lenders sort of making decisions and for the most part, extending deferment periods, hoping that the economy will recover. But at some point, they're going to have to start asking for these payments to be made.
But how long will lenders put up with missed payments by consumers? Our reporter, Anna Maria Andriotis, will join us in a moment to discuss.
Tens of millions of student loans are going unpaid during the recession. Many borrowers are making use of forbearance programs to get by. But how long until delinquencies start showing up on their records? Our reporter Ana Maria Andriotis is with us to discuss. So Ana Maria, how much has the level of student loan deferments ramped up during the pandemic?
How much have student-loan deferments increased between April and May?
By the end of May, there were 79 million student loans that were in deferment, according to credit reporting from TransUnion. That 79 million was 18 million at the end of April. So in the course of about four or so weeks, there were an additional 61 million accounts, student loan accounts that were placed in some type of deferment. And this data is all based on the accounts that started being placed in this type of status from March 1st and on. So we're basically talking about the number of student loans that have been placed in deferment or some other type of relief since March 1st rose to 79 million accounts at the end of May compared to 18 million accounts at the end of April. So a significant increase.
Wow, that's just not a lot of money left over to pay their debts.
This is one of the issues currently playing out where in the first few weeks of the pandemic, especially once we got to around April, many people were receiving their stimulus checks and using that money to help pay interest. for various expenses and debts that they owe, also leaning on the unemployment benefits that they were beginning to receive. So for many people, the stimulus checks have been used up and the unemployment benefits, while they've risen for many people than what they used to be pre-pandemic, the unemployment benefits aren't large enough to cover the cost of living in high cost areas. to replace the paychecks that many people in high-cost areas were earning. And if you are an individual, regardless of where you live, where you just had a lot of debt coming into March and then ended up becoming unemployed, the unemployment benefits might not stretch very far either.
Now, the government has allowed many student loan borrowers to halt payments until September the 30th. What happens after that?
Well, that remains to be seen because As you point out with the student loans, with the federal student loans, most borrowers have been able to stop making payments through September 30th. And presumably after that, the bill starts being due. And the question, the big question right now, whether it's student loans or other types of loans, be it auto or credit cards, et cetera, is that when that bill comes due, will people be in a situation where they can actually start making payments again. And that, quite frankly, depends on the unemployment rate and how quickly people get back to work.
How are stimulus checks and unemployment benefits affecting borrowers' ability to pay?
So how are consumers handling other kinds of debt?
With auto loans, for example, the number of auto loans that were in some type of deferment by the end of May doubled to 7.3 million accounts. And again, that's compared to the end of April. Personal loans and deferment also doubled to 1.3 million during this period. credit card accounts in this deferment or forbearance status also continued to rise. And mortgage debt in deferment also increased. There were 5.5 million mortgages that were in some type of deferment at the end of May compared to about 3.6 million a month prior.
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Chapters
4 chapters
1
How many Americans have paused loan payments since the coronavirus began?
0:05–1:15
2
How much have student-loan deferments increased between April and May?
1:15–4:08
3
How are stimulus checks and unemployment benefits affecting borrowers' ability to pay?
4:08–5:39
4
What happens to federal student loans and mortgage forbearance after September 30th?
5:39–7:57
Speakers
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