One of the first actions the federal government took in response to the COVID-19 pandemic was a pause on student loan repayments. The program, which began in March of 2020 with the passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, has now been extended to August 31, 2022.
The reason that the federal government can enact this type of policy in the first place has to do with a funding shift in student loans that occurred in 2010. Prior to that, most federal student loans were funded through the Federal Family Education Program (FFELP), a program dating back to 1965 that saw the majority of student loan funding from the government flow through commercial banks. Today student loans are funded directly by the U.S. Department of the Treasury.
The treasury reports having $1.6 trillion in student loans on its balance sheet. $230 billion of that are outstanding FFELP loans that do not qualify for the CARES act repayment pause. Before the pandemic, the amount in repayment for these loans was just under $700 billion. Since the pause repayments have cratered by 98% to $16 billion. During that same timeframe loan forbearance rose seven-fold and now accounts for over $1 trillion of federally held loans.
The government does not publish a forbearance timeline is not provided for states, but overall loan data is available. For the most recent quarter Arizonans owe about $31.4 billion in student loans. An average debt of $35,396 is carried by 887,100 borrowers. These figures put Arizona solidly in the middle when compared to other states.
This means that the average Arizona borrower would pay about $250 a month on their student loan if it was in repayment. Since most of these loans are in forbearance the average borrower has an extra $3,000 annually. To put this into perspective it equates to an extra $33,000 less buying power for potential homebuyers and about $850,000 for a 22-year-old college graduate saving up for retirement.
