Millions of American consumers are in for a jolt: a backlog of household debt that could abruptly come due in the months ahead.
One of the less-noticed pillars of financial relief during the COVID-19 pandemic has been temporary debt relief, a process known as “forbearance.” It allowed people to postpone payments on $2 trillion worth of home mortgages, car loans, student loans, and other debt.
A new study, coauthored by Amit Seru at Stanford Graduate School of Business, finds that this temporary debt relief did a great deal of good. It prevented a wave of home foreclosures and shielded millions of people who had lost their jobs but still had big student debt. Indeed, it may have helped prevent a collapse in housing prices that could have wiped out vast amounts of household wealth.
The urgent issue now, says Seru, is what to do about the avalanche of past-due bills when the forbearance ends.
Study co-arthor is Susan Cherry, a 2019 EDGE Fellow .