By the end of 2021, borrowers subject to the payment freeze had an additional $1,500 in outstanding student loan balances relative to those that did not see a payment stoppage. Despite having higher cash on hand, borrowers do not use their additional liquidity to pay down other debt. In fact, household leverage rises as borrowers make higher payments on other loans, and mortgage, auto, and credit card debt rise. Overall, excluding student loans, household leverage increases by $1,200 (3%) for households subject to the pause. Student loan balances increase by a similar amount. The results suggest that the payment pause led to higher durable and non-durable consumption in the short term, but higher overall leverage, consistent with binding liquidity constraints. We find that the effects are concentrated among borrowers who have not previously been delinquent on a loan. These borrowers likely had no change in their supply of credit. Instead, their increased use of credit implies that their demand for credit increases as they have more liquidity.
- Date Posted:
- June 5, 2023
Evidence from card swipes suggests that only about half the office space in major U.S. cities is currently in use, with little indication of a return to pre-pandemic norms. Some of the biggest beneficiaries of the change in how and where we work may be heretofore declining small cities that aren’t too far from bigger metros. One of my favorite papers in urban economics was an old piece, also co-written by Ed Glaeser, this time with Joseph Gyourko, which pointed out that even cities that have lost much of their original economic rationale tend to decline only slowly. Why? Because housing is durable, and declining old cities offer would-be residents a cheap place to live. Historically, these declining cities tended to attract less educated workers, often immigrants.