American's Have Stopped Paying Their Debts At An Unimaginable Rate
Americans have skipped payments for over 100 million student loans, auto loans and other debts since the start of the pandemic in early March, The Wall Street Journal reported.
From March 1 to the end of May, the number of accounts that are enrolled in relief programs has reached 106 million, three times the number at the end of April, according to TransUnion, a credit-reporting agency.
Student loans saw the largest increase in deferment or other relief status, going from 18 million accounts in such status in April to 79 million in May. Auto loans doubled to 7.3 accounts in deferment in May, and personal loans in deferment rose to 1.3 million accounts.
The data reflected on the economic impact of recent waves of layoffs. Many Americans have used up the federal stimulus checks and unemployment benefits, but cannot find any means to keep up with their debts.
The government has instructed companies to allow borrowers to defer their loans. For example, the Cares Act in March allowed many borrowers to stop paying monthly federal student loans until September 30. Homeowners could also ask their mortgage servicers for permission to freeze their payments for up to 12 months.
Many private lenders are also allowing consumers to skip or pause payments in hopes of future economic recovery getting consumers back on track.
However, the deferment causes problems for lenders to decide if applicants’ credit scores reflect their actual financial conditions. Lenders cannot be sure if the deferments are due to the pandemic, and if the applicants should get new loans.