When the deadly COVID-19 pandemic began taking a toll on the economy and Americans’ finances earlier this year, monthly payments were paused 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 that they’ll be able to pay, according to a new NerdWallet survey.
Among those with federal debt, 45% say they are “not at all confident” or “not very confident” they can meet payments, according to an Oct. 12-14 survey of 2,045 U.S. adults by NerdWallet and conducted online by Harris Poll. These results don’t account for parent loans borrowed on the student’s behalf, though students often are expected to share that repayment responsibility.
The survey found 22% of those with federal student loan debt are “very confident” and 32% are “somewhat confident” they could make payments when they begin again.
For many, a lifeline; for others, a windfall
The automatic payment pause was intended to provide relief to cash-strapped borrowers. The survey shows the pause has helped borrowers reprioritize their finances in different ways.
A third of Americans with federal student loan debt (33%) say they’re using the money that would normally go toward loan payments to pay for necessities like rent, food and utilities.
But 29% of federal borrowers surveyed say they’re using the would-be loan money to pay off debt — 16% said they were paying off credit card debt; 13% named another type of debt and 8% say they were paying off private student loans.
Some borrowers are also padding their savings, with 1 in 5 (19%) putting the would-be loan money into an emergency savings account and 13% investing the money for retirement, according to the survey.
In addition, about 1 in 5 borrowers (19%) 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 private loan borrowers, 1 in 10 chose to refinance their private loans (11%), 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 lowered payment options available by contacting their lenders.
Options for borrowers facing payment challenges
The automatic forbearance Congress included in the March coronavirus relief act was extended from Sept. 30 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 again.
But there already are safeguards in place to help keep payments manageable for Americans concerned about repaying federal student loans come January.
For someone 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 income and extend repayment. A quarter (25%) of those surveyed said they enrolled in federal income-driven repayments.
The other option is applying for an unemployment deferment, which postpones payments (potentially with interest) for up to 36 months in six-month increments.
Borrowers should contact their servicer before student loan forbearance ends Dec. 31 to file the paperwork for income-driven repayment or an unemployment deferment.
Students are dissatisfied with fall 2020
The college experience was drastically different for students nationwide this fall as many schools limited on-campus life to curb COVID-19 infections. As a result, a huge majority of students surveyed (84%) said they are dissatisfied with the fall 2020 semester, according to the survey.
Problems stemming from remote learning were a key factor:
20% of students didn’t feel like they were getting their money’s worth.
14% said that they didn’t want to pay full tuition to learn remotely.
19% said that they didn’t learn well remotely.
21% said that they had difficulty getting the help they needed from their teachers while learning remotely.
College disruptions due to COVID-19 also had an impact on some students’ ability to complete their degree on time:
17% said they didn’t think they would graduate when they planned to.
6% of those who responded said they planned to drop out of school.
While there’s no certainty about how college will look in the future, completing a degree is essential to competing in the workplace and earning more money over a lifetime. Bachelor’s degree holders earn an estimated 31% more than those with an associate degree and 84% more than those with a high school diploma only, 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 students at greater risk of defaulting on their loans.
See the full survey results here.
How to get more money to pay for school
For students whose 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 difficulty 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.