By Anna Helhoski
When the deadly Covid-19 pandemic began taking a toll on the economy and Americans’ finances earlier this year, monthly payments were suspended automatically for more than 42 million federal student loan borrowers. Now, with payments scheduled to resume in January, nearly half of those with federal debt say they aren’t confident they’ll be able to pay, according to a new NerdWallet survey.
Among Americans with federal student loan debt of their own, 45% say they are “not at all confident” or “not very confident” they will be able to make their payments when automatic forbearance ends, according to an October survey of 2,045 U.S. adults, including over 200 with federal student loan debt of their own and more than 200 current college students (undergrad and grad), commissioned by NerdWallet and conducted online by The Harris Poll. This doesn’t account for parent loans borrowed on the student’s behalf, although students often are expected to share that repayment responsibility.
The survey found 22% of those with federal student loan debt of their own are “very confident” and 32% are “somewhat confident” they will be able to make their student loan payments after automatic forbearance ends.
For Many, a Lifeline; for Others, a Windfall
The automatic payment pause was meant to provide relief to cash-strapped borrowers. The results of the survey show the pause has helped borrowers reprioritize their finances in very different ways.
A third of Americans with federal student loan debt of their own (33%) say they’re using the money that would normally go toward their loan payments to pay for necessities like utilities, rent and food while their loans are in automatic forbearance.
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But 29% of federal borrowers say they’re using the would-be loan money to pay off/down debt — 16% are paying off/down credit card debt; 13% are paying off/down another type of debt and 8% are paying off/down private student loans, according to the survey.
Some federal borrowers are using would-be loan money to pad their savings: Nearly 1 in 5 (19%) say they’re putting the would-be loan money into an emergency savings account and 13% say they are investing the money for retirement.
In addition, about 1 in 5 federal borrowers (19%) surveyed say they’re still making federal loan payments as usual.
Some Private Loan Borrowers Are Refinancing
Private loan borrowers weren’t eligible to receive the automatic forbearance and, in general, have fewer options for relief. Among those with any student loan debt of their own (including both federal and private student loans) about 1 in 10 chose to refinance their private loans (11%) since the start of the pandemic, the survey found. Refinancing means combining all their private loans into a new private loan with its own interest rate.
Refinancing isn’t a good idea for federal loan borrowers right now since it would nullify access to income-driven repayment options or any potential loan forgiveness. But among private loan borrowers whose finances weren’t negatively affected, refinancing can help lower payments and save on interest.
Private loan borrowers also may find payment pauses or lower payment options available by contacting their lenders.
Borrowers Have Options
The automatic forbearance Congress included in the March coronavirus relief act for pandemic relief was extended from a Sept. 30 end date through the end of 2020 by President Donald Trump in August. Assuming the payment pause isn’t extended a second time, borrowers who are unemployed or underemployed may face difficulty making payments.
For those 45% of federal borrowers who lack confidence in repaying their federal loans come January, there are safeguards in place to help keep payments manageable.
For borrowers without a job, payments could be as little as $0 by enrolling in an income-driven repayment plan. These plans set payments at a portion of your income and extend repayment.
A quarter (25%) of those with federal student loan debt of their own say they have modified their loan payments using an income-driven repayment plan since the start of the pandemic, according to the survey.
The other option is applying for an unemployment deferment, which postpones payments (potentially with interest) for up to 36 months in six-month increments.
Contact your servicer before student loan forbearance ends Dec. 31 to file the paperwork for either income-driven repayment or an unemployment deferment.
Students Not Happy With Fall 2020
The college experience was drastically different for students nationwide this fall as colleges limited on-campus life to try to curb Covid-19 infections. As a result, a huge majority of undergrad and grad students (84%) say they are dissatisfied with the fall 2020 semester, according to the survey results.
Problems stemming from remote learning are a key contributing factor to this dissatisfaction:
- 1 in 5 college students (20%) say they don’t feel like they are getting their money’s worth.
- 14% say they don’t want to pay full tuition to learn remotely.
- 19% say they don’t learn well remotely.
- 21% say they have difficulty getting the help they need from their teachers while learning remotely.
College disruptions due to Covid-19 will also affect some students’ ability to complete a degree on time:
- 17% say they don’t think they will graduate when they planned to due to Covid-19.
- 6% of college students say they plan to drop out altogether for the spring 2021 semester.
There’s no certainty how college will look in the future, but completing a degree is essential to competing in the workplace and earning more over a lifetime. Bachelor’s degree holders earn an estimated 31% more than those with an associate degree and 84% more than those with only a high school diploma, according to the Georgetown University Center on Education and the Workforce.
And leaving school without a degree and the higher income it could bring — but still carrying the debt — puts borrowers at greater risk of defaulting on loans.
See the full survey results here.
How to Get More Money to Pay for School
If your family’s financial situation has changed during the pandemic, there are options to get more aid for school.
Make sure you’re maximizing the aid you’re entitled to receive by submitting the Free Application for Federal Student Aid, or FAFSA. You can update your application, request a professional judgment from your school or appeal your aid award.
If you run into money problems during the semester, contact your school’s financial aid office about any emergency aid options that might be available such as a cash grant, completion scholarship, food assistance or housing assistance.
This online survey of 2,045 U.S. adults ages 18 and older on Oct. 12-14, 2020, was conducted by The Harris Poll on behalf of NerdWallet. Of those polled, 269 are college students (undergraduates or graduate students), and 438 have personal student loan debt and 273 have personal federal student loan debt. This online survey isn’t based on a probability sample, so an estimate of theoretical sampling error cannot be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, contact Mauricio Guitron at [email protected]
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Anna Helhoski is a writer at NerdWallet. Email: [email protected] Twitter: @AnnaHelhoski.