7.8 million student-loan borrowers are at 'high-risk' of being unable to pay if Biden resumes payments in May, analysis says

• A new analysis projected 7.8 million student-loan borrowers may fall behind on payments in May.
• It also found the loan payment pause has raised average credit scores by nearly 30 points.

The pandemic pause on student-loan payments was instrumental in helping millions of Americans restore their financial standing.

But that could quickly change should President Joe Biden resume payments in under two months, according to the California Policy Lab and the Student Loan Law Initiative.

On Wednesday, the organizations released an analysis examining the impact of the over two-year pause on federal student-loan payments. Using anonymized credit records, the analysis found the average credit score among borrowers rose from 640 to 688 over the past two years, and average overall debt obligations fell by $210.

"Put plainly, the pause on student loan payments worked," Professor Dalié Jiménez, Director of the Student Loan Law Initiative at UC Irvine Law, said in a statement. "This new research shows that when people with student debt were thrown an economic lifeline by the government, they caught it— building stronger credit, paying down other debts, and weathering the pandemic while limiting damage to their financial lives."

If payments do resume in May, millions of borrowers may find themselves in trouble — the analysis projected that 7.8 million borrowers, owing nearly $280 billion, will be at "high risk" of missing a payment if the pause expires. While this projection is "inherently speculative," the analysis noted, given it cannot predict macroeconomic trends, "they have value for informing the policy conversation about the payment pause."

To classify borrowers that may struggle when payments resume, the organizations used four criteria:

1. They were delinquent or in default on any loan a year before the payment pause began.
2. They were delinquent or in default on a loan that was not eligible for the payment pause since the pandemic began.
3. They had a new collection show up on their credit report during the pause.
4. And they were in the group considered most likely to default on their most recent credit rating.

Still, as the analysis said, 13.5 million borrowers are at low-risk of missing payments and show "positive financial trends." Student-loan payments have been paused for the duration of the pandemic, and while many advocates and lawmakers have lauded the relief, they said that despite economic recovery, federal borrowers may still be unprepared to foot another monthly bill on May 1.

The Government Accountability Office recently identified 50% of student-loan borrowers as "at-risk" of falling behind should payments in resume in May, which could lead to wage garnishment and withholding of federal benefits.

Beyond the data, some borrowers themselves say they don't feel ready. The Student Debt Crisis Center recently found 92% of fully-employed borrowers are worried about affording payments in May alongside rising inflation, even as many Republican lawmakers argue further broad student-loan relief would exacerbate inflation and hurt the economy.

White House Chief of Staff Ron Klain recently suggested borrowers may be on the hook for further relief before the expected payment resumption date, but as private lenders continue to lobby Congress against another extension, Biden has remained silent on when, or if, that relief will hit borrowers' wallets.