46% of student loan borrowers aren’t ready to start making payments
- Borrowers will be expected to start making student debt payments in October, but many report not being prepared for the end of forbearance.
- Even though the government's Student Debt Forgiveness program was struck down by the Supreme Court, the government has introduced "on-ramp" policies that should ease the load of student debt payments in the first year. But many borrowers don't understand what these policies entail.
The student loan landscape in America has seen some rapid changes in the past few years. First, the Trump administration put a pause to student loan payments in 2020, as part of pandemic relief measures taken by the government. Since then, the pause has been extended nine times, but will lift at the end of October. Student loans will start accruing interest in September but payments will begin in October.
Meanwhile, measures that could have provided relief to the borrowers like the Student Loan Forgiveness program championed by the Biden administration have been struck down by the Supreme Court. Come October, borrowers will have to make tough decisions on spend and savings, to carve out space for the student debt repayment.
Although the government has greenlighted repayments, borrowers are far from ready, with 46% saying they aren't prepared to resume payments, according to a recent survey. Moreover, many were expecting the Student Debt Forgiveness program to become a reality, and a majority think the government should try again to get the debt forgiven.
On the other hand, with October fast approaching, borrowers are not adequately informed about what the resumption of student debt payments will entail. For example, the Biden administration has announced “on-ramp” policies to ease the start of repayments, through which borrowers will not be reported as “delinquent” during October 1, 2023 to September 30, 2024. During this time, they will also not be contacted by debt collectors and their missed student loan payments will not be reported to credit bureaus. 67% of the people surveyed have heard of the new policies and only 31% know what they are.
During forbearance, borrowers were able to put the money they saved from not paying student debt payments to pay down other debts or grow their savings. When payments resume, it is likely that the financial health of borrowers will take a hit. The lack of understanding around on-ramp policies provide financial institutions an opportunity to improve financial literacy around student debt.
Similarly, fintechs that provide student debt refinancing options, like Earnest, are likely to see renewed interest from borrowers. However, with opportunity comes responsibility, as borrowers contend with paying down debt, FIs can leverage their position of trust to provide borrowers with credible information and help around repayment plans or options like refinancing and consolidation. Focusing on financial literacy programs and messaging about particular borrower segments may help as well, since student debt affects non-white households and borrowers differently and more acutely.