Posts Tagged "delinquency rate"
February 2, 2023
Student Debt Plan Helps Black Retirees
For the sliver of retirees who are far behind in paying their own or their children’s student loans, Social Security can withhold part of their benefits to pay the loans back.
But college has gotten much more expensive since the baby boomers attended, and loan delinquencies are higher among working people and especially Black Americans. When today’s Black workers retire, their estimated household delinquency rate will be 5.4 percent – well more than double the rate for White and Hispanic retirees.
The question is how withholding Social Security benefits will impact the financial security of these future retirees. In cases where the federal government withholds some benefits, it garnishees the lesser of 15 percent of a delinquent borrower’s monthly retirement benefit or the amount of the benefit that exceeds $750 per month. Social Security’s average monthly benefit is currently $1,827.
The withholding practice would reduce working households’ retirement income in the future by an estimated average of 4 percent, according to the Center for Retirement Research.
Even this seemingly small decline in income can have a big impact on people who are struggling. The loss of retirement income will fall hardest on Black Americans, who are more likely to borrow for college but who earn less and will have more difficulty repaying their loans.
Whether the burden on retirees will be lightened could be determined by two lawsuits the U.S. Supreme Court is scheduled to hear later this month challenging the Biden administration’s plan for student debt relief. If the court allows the administration to proceed, the government would extend up to $10,000 in student debt forgiveness to borrowers. Lower-income students who received Pell grants to subsidize college could receive an additional $10,000.
This financial relief would wipe out the debt for a significant share of borrowers and sharply reduce the delinquencies that trigger the withholding of Social Security benefits and can undermine retirement security, especially for minority borrowers who are more likely to receive Pell grants. …
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February 4, 2021
CARES Act’s Loan Forbearance is Working
As the pandemic was sinking into our collective consciousness a year ago, Congress, fearing economic calamity, allowed Americans to temporarily halt their mortgage and student loan payments.
By the end of October – seven months after President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act – Americans had postponed some $43 billion in debt, including car loans and credit cards, which many lenders deferred voluntarily. Billions more are still being added to the total amount in forbearance.
Fast action in Congress “resulted in substantial financial relief for households,” says a new study by researchers at some of the nation’s top business schools. Their recent analysis found that the assistance went where it was needed – to “financially vulnerable borrowers living in regions that experienced the highest COVID-19 infection rates and the greatest deterioration in their economic conditions.”
When lenders grant forbearance they agree to waive their customers’ debt payments for a specified period of time. For example, Congress said borrowers could request that their payments on federally backed mortgages be deferred by six months to a year.
Although forbearance was less visible than the checks taxpayers also received under the CARES Act, the financial lift was equally potent. Customers who received loan forbearance saved an average of $3,200 just on their mortgages last year – this compares with $3,400 in stimulus checks for a family of four.
Congress also automatically suspended all payments on federal student loans, saving borrowers an average $140 last year, and President Biden has just extended the forbearance until at least Oct. 1. Lenders, in an attempt to prevent massive loan defaults on their books, voluntarily gave consumers a break last year on two types of loans that weren’t part of the CARES Act: automobile loans ($430 saved) and credit cards ($70 saved).
Forbearance is only temporary relief, because the missed payments will eventually have to be made up. But in a telling indication that borrowers didn’t want to fall behind, just a third of the people who asked for debt relief actually used it. In these cases, forbearance “acts as a credit line” borrowers can draw on – if they really need it. …Learn More
About Squared Away
Learn more about our blog and its writer, Kimberly Blanton, a former Boston Globe reporter.
