Between March of 2020 and September of 2023, the US Government paused payments and interest accumulation on most federal student loans. This debt moratorium provided financial relief during the COVID-19 pandemic to millions of households with outstanding student loans. But most borrowers didn’t respond by paying off their creditors.

In a paper in the American Economic Review: Insights, authors Michael Dinerstein, Constantine Yannelis, and Ching-Tse Chen showed that borrowers with a student loan payment pause increased their nonstudent debt by nearly $2,000.

Their findings come from analyzing TransUnion Consumer Credit panel data from 2000 to 2022. The researchers compared borrowers whose loans were frozen to borrowers whose loans were not—based on whether the government or a private financial institution owned the loan—before and after the 2020 debt moratorium.

Figure 3 from the authors’ paper shows the event study estimates for payments and balances of auto loans, mortgage loans, credit cards, and total nonstudent loans between 2019 and 2022.

Figure 3 from Dinerstein et al. (2024)

The vertical axes indicate loan payments (left column) and balances (right column) in dollars, and the horizontal axes indicate the month and year. The solid vertical line indicates the date that the payment freeze was announced. The vertical brackets are 95 percent confidence intervals.

For each category of debt, both loan payments and balances increased sharply after the moratorium announcement. Three months after the announcement, the rate of increase slowed, but payments and balances continued to rise at a more gradual pace. For all nonstudent loans, monthly payments increased to $20 in just over 2 years, and balances increased to roughly $1,800 by the end of the sample period. Most of this increase in debt was driven by mortgages among borrowers without delinquencies, according to the authors. 

These findings highlight that relaxing financial constraints on borrowers increases the demand for credit. And while these new debts can support more consumption in the short term, they may lead to larger, unsustainable debt burdens in the long term.