WASHINGTON – More than two-thirds of U.S. adults with federal student loans say they need to take extra steps to pay their student loan repayments when payments resume in February, according to a new survey from Bankrate and BestColleges.
Federal borrowers have not had to make a student loan payment since March 2020, when the government implemented a temporary freeze on payments and interest charges in light of the coronavirus pandemic. After several extensions, the forbearance period is set to expire on Jan.31, 2022, meaning millions of borrowers will have to pay off their federal student loans for the first time in nearly two years.
As the Jan. 31 deadline approaches, many borrowers are not optimistic about the return to normal, according to the new Bankrate survey. Only 31% plan to revert to their previous repayment schedule, while 18% do not have a repayment plan at the end of the relief period.
n Most American adults with federal loans report that their finances will be negatively affected when payments resume.
n Only 22% of federal borrowers made their regular payments during the forbearance period.
n 18 percent of borrowers do not have a plan for their student loans after the relief period ends.
Most American adults with federal loans say their finances will be negatively affected when payments resume
Of American adults who have obtained federal student loans surveyed, 75% say some aspect of their finances will be negatively affected after the administrative forbearance period is over. Forty-three percent say their ability to build an emergency fund or save for retirement will be slowed, while 39 percent predict a drop in discretionary income. More than a third of those polled say it will be more difficult to pay for daily necessities, like groceries or household bills, in February.
To offset payments renewed in February, 32% of those surveyed plan to cut discretionary spending, 26% need to find a better-paying job, and 25% say they will need a second or side job. .
Among those who anticipate negative financial impacts, millennials are the hardest hit; only 21 percent of millennials (aged 25 to 40) expect no negative financial impact, while 39 percent of baby boomers (aged 57 to 75) say the same. Millennials are also much more likely to need higher paying jobs to pay their payments at the end of the relief period: 30%, compared to 14% of baby boomers.
âYoung workers have been hit the hardest by job losses and income disruptions during the pandemic,â says Greg McBride, CFA, chief financial analyst for Bankrate.
These workers, even if they are currently employed, can still try to replenish their savings or pay off any debts they may have incurred during the pandemic.
McBride adds that borrowers are also grappling with the recent surge in inflation, “which drives up daily costs and means the paycheck doesn’t go as far as it did at the start of the year.”
Only 22 percent of federal borrowers made their regular payments during the forbearance period.
With no obligation to make federal student loan repayments, which in many cases can total hundreds of dollars each month, many borrowers have taken advantage of the administrative forbearance period by using their student loan repayments to pay others. necessary expenses. Forty percent used the money to pay daily expenses and household bills, while 24 percent used the money to pay for housing or rent.
A 0% interest rate has also allowed borrowers to reduce higher interest rate debt, such as credit cards. The average credit card interest rate is currently over 16% and the average personal loan rate is over 10%; the pause in student loan payments has saved borrowers money on interest and paid off that debt faster without sacrificing their student loans. Rather than paying off their student loans as scheduled, 31% of federal borrowers surveyed funneled their monthly payments into existing debt, like credit cards, personal loans, or private student loans.
That said, borrowers still had the option of making federal loan payments during the payment break and reducing their principal balance without additional interest charges. Twenty-two percent of federal borrowers reported sticking to their regular repayment schedule, and 15 percent spent money on their federal loans, even though it was less than normal.
18% of borrowers do not have a plan for their student loans after the relief period ends
With January 31 fast approaching, many borrowers have started to think about how they will cope with the resumption of normal student loan payments. Most choose to continue with the normal repayment (31%) or sign up for an income-based repayment plan (29%). Others will ask for more deferment (16%) or refinance with a private lender (5%).
“It is encouraging that most borrowers have already considered strategies to resume payments in anticipation of the end of the deferral,” says Melissa Venable, Ph.D., education advisor for BestColleges.
Yet nearly one in five borrowers (18%) currently do not have a plan in place for their federal student loans. These borrowers should keep an eye on the communication from their loan officer regarding the exact date of their next payment. Borrowers can also ask their service agent about their options if they anticipate financial challenges; Processing requests for new repayment or deferral plans can be time consuming, so it’s best to act as soon as possible.
How to prepare for the end of the forbearance period
For those who don’t have a plan to resume payments, McBride suggests starting budgeting now. Take a look at your finances and see if you are in good shape to continue making your payments. You should also take advantage of the federal protections and benefits available to you, especially if you have recently suffered a loss of income and need a lower monthly payment.
Some options available to borrowers include:
âIncome-Based Repayment Plans: There are several types of Income-Based Repayment Plans (IDRs) available through the federal government, which base your monthly payment on your family size and discretionary income for one. set number of years – 20 or 25. These plans can be particularly useful if you are not earning as much as before the pandemic.
– Deferment or forbearance: The current payment break is classified as an âadministrative forbearanceâ and does not count towards your normal forbearance limits. If you’re in between jobs or having trouble making a payment, you can request additional months of payment relief from your lender.
âLoan Consolidation: While consolidating your federal loans into a direct consolidation loan won’t save you money, it can lower your monthly payments because you will have the flexibility to extend your repayment term.
âRefinancing: If you took out your student loans when interest rates were high, you may choose to consider refinancing with a private lender. Refinancing with a private lender will cause you to lose the above benefits, so it is not the right choice for many federal borrowers. If you can get a low interest rate, however, refinancing could help speed up your repayment.