Households Confront the End of Pandemic-Era Assistance Programs

The U.S. government, beginning in March 2020, took extraordinary measures in response to the emergence and spread of the novel coronavirus. Through policy changes and major spending bills, the federal government directed funds to help states, localities, and households manage the economic challenges caused by the pandemic. Two of the many measures that the government took to directly aid households were increasing the flexibility and benefits of the Supplemental Nutrition Assistance Program (SNAP) and pausing federal student loan payments. Now that enhanced SNAP benefits have ended and student loan payments are resuming this fall, households may be facing a challenging financial situation.

Pandemic-Era Changes to SNAP and Student Loan Payments

In March 2020, the U.S. Department of Agriculture (USDA) made several changes to SNAP — the largest federal program aimed at reducing hunger in the United States — to combat the risk of food insecurity as the pandemic triggered job losses. By design, SNAP targets low- and moderate-income (LMI) individuals and those facing temporary economic hardship. With funding allocated by Congress, the USDA authorized states to administer extra funds called emergency allocations (EA) to participating households on top of their regular benefit amount. Congress also instituted a nationwide suspension of the SNAP work requirement for able-bodied adults without dependent children. Many states reduced barriers to SNAP enrollment and participation and leveraged existing program flexibilities to reduce the administrative burden of SNAP applications.

Following these policy and funding changes, SNAP participation increased and has remained relatively high: Approximately 12 percent of the U.S. population, or 42.4 million individuals, participate in SNAP.

The EAs ended in February 2023, with final EA payments in some states distributed as late as March 2023. Some states ended these payments earlier, including South Carolina in January 2023. Other policy changes, including the work requirement suspension, largely ended or began phasing out when the public health emergency ended on May 11, 2023.

Since the early days of the pandemic, a second direct financial support for households has been the pause of federal student loan payments. The CARES Act shifted student loans owned by the U.S. Department of Education into administrative forbearance without penalty (See "Mortgage and Student Loan Forbearance During the COVID-19 Pandemic.") Interest rates were reduced to 0 percent, and collections on defaulted loans stopped. Unlike SNAP, borrowers were eligible for forbearance regardless of income: Most borrowers made no payments during the pandemic. As a result, 37 million borrowers have not been required to make payments since March 2020.

The initial pause of federal student loan payments was scheduled to last through September 30, 2020, but has been extended several times. As part of the recent legislation to suspend the debt ceiling, Congress has set the final extension to end on August 31, 2023. Interest on federal student loans will begin accruing in September, and payments will resume for most borrowers in October.

What Will These Changes Look Like for Households in the Fifth District?

The end of SNAP EAs translated to an abrupt decrease in benefits for households enrolled in SNAP. As of March, 4.3 million individuals in 2.2 million households in the Fifth District participated in SNAP. The average individual participating in SNAP lost between $91.50 and $112.18 per month.

A similar number of individuals — 4.4 million — are federal student loan borrowers who owe approximately $176 billion in federal student loans. The median student loan balance ranges from $18,273 in West Virginia to $26,530 in the District of Columbia.

Nationally, monthly student loan minimum payments vary widely depending on a borrower's payment plan, principal balance, and interest rate. Some estimates place the average monthly payment between $200 and $314. Roughly one-third of student loan borrowers are enrolled in income-driven repayment (IDR) plans, which generally cap monthly payments at a fixed percent of a borrower's income for the full repayment period and are designed to ease the burden of student loans on households. Depending on the plan, low-income borrowers may owe as little as $0 per month.

Who Will Be Affected?

The end of SNAP EA is already constraining food budgets for many families. Households will absorb some of the loss of EA through trade-offs in the grocery aisles. In conversations with businesses in our district, our outreach team has learned that some food producers are already seeing trade-downs in product selection as SNAP benefits have decreased. Still, food insecurity is on the rise, and some food banks are seeing increased demand.

Additional economic constraints may add further pressure. Other pandemic-era programs targeted to low-income households or those experiencing financial distress have ended, including rental assistance, economic impact payments, and the expanded Child Tax Credit. Reports from nonprofits, including those providing social and economic supports in their communities, suggest there are barriers to funding now that government programs have wound down. Although housing and food price increases have eased some after rising rapidly last year, there is evidence that households may be unable to cover their debt payments. The Federal Reserve Bank of New York's recent Household Debt and Credit Report finds that new delinquent balances on nonstudent loans have been rising, particularly since early last year. (See chart.)

The outlook is more varied for student loan borrowers. Student loan debt is correlated with higher educational attainment and subsequently higher income that allows borrowers to handle payments. In 2019, the top quintile of earners held more than 40 percent of all outstanding student loan debt. Workers with higher educational attainment were also less likely to be affected by job loss during the pandemic than lower-educated workers. In a report based on a survey conducted by the Federal Reserve Bank of Philadelphia in January and April 2022, researchers find 70 percent of respondents with an outstanding education loan were confident they would be able to resume making payments when the pause ended (which was then scheduled for May 2022).

On the other hand, the authors found that the roughly 20 percent of borrowers who chronically struggled to make payments prior to the pandemic are likely to struggle once payments resume. Borrowers for whom accruing student loan debt did not lead to improved career opportunities — particularly those who did not complete their degree or who work in a field unrelated to their field of study — are the most likely to struggle when payments resume. The Consumer Financial Protection Bureau reported that 2.5 million student loan borrowers had a delinquency on a nonstudent loan in March 2023, an increase of around 200,000 borrowers since September 2022. Enrolling in IDR plans can reduce missed payments, but borrowers must take steps to understand their options, enroll in a plan, and often provide documentation to remain eligible.

In sum, low- and moderate-income households or those that otherwise struggled to make ends meet prior to the pandemic are likely to be hit the hardest by the expiration of SNAP EA and student loan forbearance. The silver lining is that there are some off-ramps to smooth the transition. The USDA is injecting additional funding into the emergency food system, and a cost-of-living adjustment bumped up SNAP payments late last year. On the student loan front, the Biden administration announced that borrowers will not be delinquent or reported to credit bureaus for nonpayment through September 2024, and the Fresh Start program gave borrowers in default the opportunity to get current on their payments. Still, many of these supports are not automatic, and the administrative barriers may be challenging for some families.

Looking Ahead: More Pandemic-Era Funding Winds Down

As households adapt to these changes in direct financial supports, two additional pandemic-era funding programs that support key institutions and organizations are tapering off. By next year, community colleges and other higher education institutions must spend remaining Higher Education Emergency Relief Funds, which have included significant supports for students. Federal stabilization funds for the child care system end on September 30, which could lead to significant child care center closures. The Richmond Fed will be watching these developments as they filter to households in the district.