Working Paper: NBER ID: w31247
Authors: Michael Dinerstein; Constantine Yannelis; Chingtse Chen
Abstract: We evaluate the effects of the 2020 student debt moratorium that paused payments for student loan borrowers. Using administrative credit panel data, we show that the payment pause led to a sharp drop in student loan payments and delinquencies for borrowers subject to the debt moratorium, as well as an increase in credit scores. We find a large stimulus effect, as borrowers substitute increased private debt for paused public debt. 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. The effects are concentrated among borrowers without prior delinquencies, who saw no change in credit scores, and we see little effects following student loan forgiveness announcements. The results highlight an important complementarity between liquidity and credit, as liquidity increases the demand for credit even as the supply of credit is fixed.
Keywords: debt moratoria; student loans; forbearance; credit scores; consumption
JEL Codes: G51; I22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2020 student debt moratorium (H63) | reduction in student loan payments (G51) |
| 2020 student debt moratorium (H63) | reduction in delinquencies (G33) |
| 2020 student debt moratorium (H63) | increase in credit scores (G51) |
| reduction in student loan payments (G51) | increase in outstanding student loan balances (H74) |
| increased liquidity (E41) | higher borrowing (H74) |
| increased liquidity (E41) | no significant effects on non-student loan delinquencies (G51) |