Analyst: Iowa student loan delinquency fell 36% at start of pandemic
The COVID-19 pandemic has plunged the US economy into a short but drastic recession, generating a wave of layoffs and business closures. But a new analysis has found that the first seven months of the pandemic actually ended with fewer Iowans past due on credit card and student loan debt.
“I think this really shows us how, in a relatively short period of time, with a little break, people can really get their financial situation back on track,” said Nick VinZant, senior research analyst at QuoteWizard.
QuoteWizard, a LendingTree affiliate that offers insurance comparisons, used data from the Urban Institute to analyze how personal debt changed in the early months of the COVID-19 pandemic. Iowa has seen a significant decrease in the number of people past due on student loans or credit card debt.
In Iowa, 14% of people were behind on their student loan payments as of February 2020, meaning they hadn’t paid for 60 days or more. In October 2020, only 9% of people were delinquent. Iowa experienced the 9th largest drop during this period, analysts said.
“In just eight months, you had 20,000 people (in Iowa) who were able to catch up on their student loan payments,” VinZant said. He noted that those 20,000 did not fully repay their loans on time – they were simply no longer behind in their payments.
Ty Patton, communications coordinator for Iowa College Aid, said the state has seen a similar phenomenon in the number of Iowans not repaying their student loans. About 7% of Class of 2018 graduates defaulted on their loans in the first three years after graduation. This is a decrease from the class of 2017, which had a default rate of 9.3% in the first three years, and every class since 2009, which had a default rate of 10%. or more.
VinZant pointed out several factors that could explain the change. First, the federal government sent out a first stimulus check in April 2020, giving people an additional $ 1,200 that could be used to pay off unpaid debts. The US Department of Education has also temporarily suspended federal student loan repayments from March 2020.
“The third thing is that with the locks in place, people really didn’t have enough to spend their money on,” VinZant said. “They weren’t traveling, they weren’t eating at restaurants, they weren’t really going anywhere.”
The same factors – the student loan repayment freeze, stimulus checks and lockdowns – could also explain a drop in credit card default, according to VinZant. In February, 9% of Iowa residents were past due on their credit card debts, meaning they hadn’t made a credit card payment for 30 days or more. In October, only 3% of Iowans were delinquents.
Patton said analysts at Iowa College Aid believed the moratorium on student loan payments caused the default rate to drop for the Class of 2018. But he warned the effects may not last.
“The main concern is, at the end of this moratorium, how borrowers will start paying their loans again and budgeting appropriately to do so,” Patton wrote in an email. “This may be further exacerbated by the fact that many federal loans change agents during this period, creating some confusion as to who borrowers should pay.”
VinZant said it was too early to know how debt default rates changed between October 2020 and now, but he expects people to continue to make up for their missed payments, albeit at a slightly slower pace. slower.