Student Loan Payments Set to Resume in 2022, but 55% Can’t Afford Them

 January 6, 2021
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Since last March, the U.S. government has allowed all borrowers of federally held student loans to pause their repayment at zero interest, in an effort to ease the financial strain of the COVID-19 pandemic. But unless it’s renewed, this emergency measure will end Jan. 31, 2022, after which borrowers may have to resume payments. [Update: the student loan repayment freeze has been extended to May 1, 2021 — read our post for more details.]

Although President-elect Joe Biden is likely to take further action on student loans in the new year, we don’t know yet what form that will take.

And when student loan payments do resume, more than half of student loan borrowers don’t feel confident they’ll be able to afford them, according to a new Student Loan Hero survey taken just before the halt to repayment was extended through the end of January.

A majority of those surveyed also said that the current break in repayment hasn’t helped them save money. Here’s a rundown of how borrowers are feeling ahead of a possible resumption to payments.

Key findings

  • Nearly 55% of federal student loan borrowers were not confident they’ll be able to make payments consistently once student loan forbearance ends. Furthermore, about 29% were unsure about covering their first payment when it’s due. (Read more)
  • Just under 42% of borrowers said they hadn’t made any monthly payments since the student loan relief measures went into effect, but a roughly equal number kept paying as usual. (Read more)
  • Female borrowers and those who were laid off or furloughed due to the pandemic were most concerned about the student loan payment moratorium expiring. (Read more)
  • Almost one-third of those worried about their ability to resume student loan payments planned to apply for forbearance. (Read more)
  • Of those who took advantage of the payment freeze, about 85% said the break didn’t translate into increased savings, with most instead using the money on groceries or bills. (Read more)

More than half of borrowers worried about making student loan payments again

The Coronavirus Aid, Relief and Economic Security (CARES) Act paused federal student loan payments to help borrowers during the pandemic. But as the relief measure nears its possible end, 55% of borrowers were not confident they’ll be able to keep up with their payments next year.

Among respondents, 29% said they didn’t think they’ll be able to afford their first payment once repayment resumed (which at the time of the survey was slated for Dec. 31, 2020). Meanwhile, 26% said they could probably cover the first month but were concerned about the following months.

While no interest has accrued during this period of emergency forbearance, borrowers may still be facing high monthly payments. According to the latest data, the average monthly student loan payment (not counting those in deferment) ranges from $200 to $299.

Female borrowers, furloughed borrowers are most concerned

Female borrowers were especially likely to worry about resuming student loan payments — 65% of them were concerned about being able to make their student loan payments after the moratorium expires, compared to 43% of male borrowers.

Not surprisingly, borrowers who lost their jobs due to the pandemic were even more likely to worry about paying their student loans again. Among them, 70% said they weren’t confident they could afford their future payments, and 43% said even making the first payment was unlikely.

Among borrowers who say their salary or income was cut, 35% didn’t think they’d be able to afford that first loan payment, while 48% of those who lost income in some other way felt the same.

Almost 1 in 3 borrowers plan to pause payments through forbearance

While a large segment of borrowers are concerned about resuming payments in 2021, many have a plan for managing their student debt. Overall, 32% said they intend to apply for forbearance, and 26% said they’d request a deferment of their student loan payments.

Although both options can be helpful, they should typically only be used as a last resort. This is especially true because unsubsidized loans continue to accrue interest during periods of deferment, and all loans accrue interest when placed in (non-emergency) forbearance.

About 1 in 5 borrowers (21%) hoped to change their repayment plan, perhaps opting for an income-driven repayment plan to lower their monthly bills. Meanwhile, 18% intended to ask their servicer for help, 10% said they will call on friends and family for assistance, and 10% said they will apply for refinancing.

Refinancing student loans can ideally lead to a lower interest rate and savings on your debt. But be cautious about refinancing federal loans with a private lender, since it means your loan will no longer be eligible for federal protections and other benefits.

Among those surveyed, 12% said they don’t plan to do anything about their loans, even though this inaction could lead to their debt going into collections.

If you’re worried you can’t afford your federal student loan payments, speak with your lender about your options. That way, you can avoid the harmful consequences of going into student loan delinquency or default.

About 2 in 5 borrowers continued making payments despite legislation

According to the survey, 42% stopped making payments completely during this period of emergency forbearance, but an equal percentage kept making payments on their student loans every month.

This finding matched up exactly with an earlier Student Loan Hero survey, where 42% of borrowers said they planned to continue submitting voluntary monthly payments during the repayment freeze.

By continuing to make payments, these borrowers were likely able to cut down on their student loan debt faster than normally, thanks to the suspension of all interest charges.

Meanwhile, 17% of the borrowers in this survey said they made a few payments since the relief measures began, but not on a regular monthly basis.

Most borrowers say pausing payments didn’t help their savings

While the pause to student loan payments may have offered borrowers some relief, it unfortunately hasn’t been enough to help most borrowers save.

Among those who stopped making payments, 81% said the break didn’t result in increased savings, since they had to use that money “on expenses like groceries or bills.”

This was especially true among those whose income was impacted by the pandemic. Among borrowers laid off or furloughed, 89% said they had to use that money on other expenses. And among respondents who had seen their salary or hours cut or their income impacted in some other way, 89% said they weren’t able to grow their savings.

For borrowers whose income was not affected by the pandemic, however, 20% were able to put the money they would have used for student loan payments into their savings instead.

Prepare for student loan payments in the new year

Although the government may extend the CARES Act’s protections for student loan borrowers, there’s no guarantee that this will happen. As a result, it’s important to prepare now to resume making payments in 2021.

Start by logging in to your student loan accounts to find out when your student loan payments are due. Consider setting up autopay (if you haven’t already) so you don’t miss a payment.

If you’re worried about affording those payments, reach out to your loan servicer to discuss your options. You might be able to pause repayment through forbearance or deferment or adjust them on an income-driven repayment plan.

Income-driven repayment is designed to make your monthly payments more manageable and prevent your loan from going into default. Make sure to take advantage of it if you can’t afford your student loan payments in February or beyond.

If, on the other hand, you’re confident you can afford your student loan payments, explore refinancing for lower rates and other strategies to pay your student loans off faster.

Published in News & Policy