Student borrowers are officially ready to resume payments on Federal student loans in October 2023. By the time repayment resumes in October 2023, the payment pause and interest relief will have lasted a total of 42 months (counting March 2020 as a full month).
Meanwhile, the initial payment pause and interest relief have been extended a total of 8 times to allow student borrowers to be more financially prepared to resume payments after the effects of the Covid-19 pandemic wear off. are passed on to the economy.
But the real question is: Are student borrowers really financially able to resume their payments? And has this changed since our survey last year? before the payment break is extended? Here’s what we discovered.
We asked 1,200 student borrowers about how their income and expenses have changed since March 2020 (the start of the Covid-19 pandemic in the United States) and how willing these borrowers are to start repaying student loans again when they resume in 2023.
Here is what we found:
- 55% of student borrowers do not feel ready to resume payments in 2023. This is a significant increase from 2022, when only 29% of borrowers felt financially unprepared.
- Only 42% of borrowers know exactly what their monthly payment will be when repayment resumes. This highlights a great lack of communication between borrowers and the Ministry of Education and the various student loan servicers. It also adds to the anxiety of student loan borrowers.
- As a result, 82% of student borrowers worry about loan repayment.
So what has changed for borrowers since March 2020?
- 46% of student borrowers said their income had increased, but the rest saw their income drop or stay the same.
- Meanwhile, 53% of student borrowers said their monthly spending had increased since March 2020.
- As a result, 57% of student borrowers say they use their savings by defaulting on their student loan to just cover basic needs like food and housing costs.
Can borrowers resume student loan repayments?
Student loan payments should resume in October 2023. Interest on federal student loans will accrue in September 2023. Given that it has been over 3 years since borrowers were due to make a student loan payment (and approximately 20% of all student borrowers do not have ever had to make a loan payment due to graduation during the Pandemic payment pause), we wanted to know what borrowers thought about the resumption of their loan repayments.
Although no one wants to restart their loan repayments, we have found that 55% of student borrowers do not feel financially ready to resume student loan payments.
Knowledge of borrowers about their student loans
Beyond the individual financial issues borrowers face, we wanted to know to what extent borrowers even knew what was going on with their student loans. We’ve heard and read about a lot of the issues borrowers face in terms of keeping track of their loans, finding their student loan repayments, or even knowing what programs they qualify for.
So when it comes to restarting student loan repayments this fall, we wanted to see what borrowers knew about their loans (it was a little shocking).
First, only 42% of student borrowers even know what their payment will be when student loans restart. That means 58% of borrowers don’t even know what their loan repayment will be!
As a result, 82% of student borrowers worry about repaying their loan.
Since the best way to manage student loan repayment is to choose a student loan repayment plan you can affordwe wanted to assess borrowers’ knowledge of different repayment plans. We found that a third of borrowers didn’t know there were different repayment plan options for their student loans.
Along the same lines, we wanted to know if borrowers understood if they could qualify for student loan forgiveness programs to see if they can eliminate their student loans. Terribly, only 59% of student borrowers knew if they were eligible for some type of student loan forgiveness program.
How have borrowers’ finances changed during the pandemic?
Repayment of your student loans depends on your ability to pay your student loan payment. One of the main reasons for the suspension of payments and the waiver of interest was due to the damage caused by the Covid-19 pandemic to an individual’s income. And the extensions were justified by the lasting damage to people’s incomes (and lately, expenses due to rise in inflation).
Let’s start with revenue. 46% of student borrowers said their income had increased since March 2020. At the same time, 30% of borrowers said their income had decreased, while the rest remained the same.
With regard to expenses, 53% of borrowers said their monthly expenses had increased since the start of the pandemic.
Since there was big savings with student loan payment break, we were curious to know how borrowers spend this money in general. We found that 57% of borrowers used savings to cover necessary living expenses like rent and food. The next category was made up of 24% of borrowers using their savings to pay off other debts, such as credit cards. The third most common response was 10% using the money to fund their emergency fund.
Finally, we asked a more subjective question about why borrowers don’t feel financially ready to resume student loan payments. It’s more subjective because borrowers may not “want” to do something but are actually able to do it.
When it comes to why borrowers don’t feel financially ready to resume payments, 40% said their spending has increased and adding on student loan repayments is unaffordable. Another 37% said that even on the lowest monthly repayment plan, their income was too low.
Another 11% said they simply hadn’t taken the time to determine if they were financially able to resume their payment. And 4% said they just don’t want to resume payments – there’s no real financial reason as to why.
It was interesting to see a significant decrease in the percentage of Americans with student loans who feel financially ready to resume payments in 2023. When we surveyed 1,200 borrowers in 2022, 71% felt financially ready to resume payments. This number has dropped to just 45% feeling financially ready.
It’s also about the fact that few borrowers understand what their loan repayments will be – with just 42% feeling confident they know exactly what their payment will be. Additionally, a third were unaware they had other student loan repayment plan options, and 41% were unaware of loan forgiveness options. All of these signs point to a breakdown in communication between the Ministry of Education and its loan officers.
Of course, borrowers won’t feel financially ready if they don’t know what to expect and what their options are. This is probably a major factor explaining why 82% of student borrowers worry about repaying their loans.
The College Investor commissioned Pollfish to conduct an online survey of 1,200 Americans who had student loan debt as of the survey date. The survey was conducted on June 16, 2023.