The payment break on federally guaranteed student loans has served millions of borrowers across the country, but one business has been hit hard by the moratorium.
After the payment suspension was announced, “our student loan business was cut by more than half,” Anthony Noto, CEO of SoFi, told Yahoo Finance Live (video above). “It was our biggest business, it was our oldest business… this business has been operating at about 50% of the pre-COVID volume over the past 20 months.”
Noto explained that SoFi Technologies Inc. (SOFI) has seen demand drop significantly for its student loan refinancing business since former President Donald Trump announced a hiatus on all payments on federal student loans in March 2020. This break has been extended several times and will finally expire on January 31, 2022.
The company was able to diversify into other personal finance products to offset the slowdown, he added. But the drop in demand was still severe.
About 5.3% of student loans were in default or in default, but as the government says all federal students are on time until Jan.31, 2022, the number is lower than pre-pandemic levels .
Demand will be back in 2022: SoFi
Noto pointed out that there is a silver lining in the refinancing of student loans.
With the resumption of payments in 2022, “I think there will be a significant increase in the number of those who wish to refinance their student loans,” he explained, noting that rates remained at “historic lows” .
“We’re going to see a significant increase in 2022 as people have to start paying off their student loans again,” Noto added, “and they have the opportunity to refinance with substantial savings… given current rates.”
Overall, the growth in student loans over the past decade has been historic: Federal student loans increased from $ 642 billion in 2007 to $ 1,566 billion in 2020, an increase of 144%, according to a report on the subject of the Biparty Policy Center (BPC). However, the number of borrowers only increased by 52% over the same period.
That’s because students are borrowing more: Between 2007 and 2020, the average amount of federal student loan debt per borrower rose from $ 22,680 to $ 36,510 in real terms, according to the BPC report.
Meanwhile, the government continues to make progress on student loan programs, most recently by revamping the Public Service Loan Forgiveness Program (PSLF) in October. Many borrowers are already seeing the red tape accelerate and get forgiveness for these actions, according to social media advocates.
And data and expert analysis from the Department of Education (ED) show that federal actions amid the pandemic between March 2020 and September 2021 led to about $ 100 billion in total student loan cancellations.
Read the latest financial and business news from Yahoo Finance