New research shows borrowers weren’t prepared to resume repayments next month.
The White House just announced the moratorium on student loan payments that was scheduled to end on May 1, will extend to the end of August.
This will be the sixth extension since former President Trump paused federal student loan payments as part of the CARES Act in early 2020. Over the past two years, the federal government made monthly payments on most federal student loans optional – providing relief for potentially 40 million borrowers.
The timing of the announcement comes on the heels of recently released research from Student Loan Hero.
The LendingTree-owned company polled more than 1,000 federal student loan borrowers. The survey found that 3 in 4 respondents “report not being financially ready to resume monthly payments.” They now have until Aug. 31 until the moratorium ends.
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The extra money makes a difference
Most Americans who skipped voluntary payments during the moratorium used the extra money for necessities like groceries and housing costs. Others used it to get out of debt or to “get back onto their feet financially.”
With one less bill to worry about, some Americans were able to stay afloat. But that doesn’t mean they’re prepared to take on that responsibility again.
One survey respondent said, “I did not have money to pay [the loans] at the time. I don’t know what I would have done if they were not paused, and still don’t know what I’m going to do when they continue.”
Seventy-two percent of federal loan borrowers said they aren’t financially ready to resume their monthly payments. That number jumps for workers whose income was hurt by the pandemic – 9 in 10 said they aren’t prepared to pick up their payments. And they aren’t the only ones struggling.
“Before the pandemic arrived on U.S. shores about two years ago, older borrowers were already reeling,” writes Andrew Pentis, certified student loan counselor with Student Loan Hero. “More than half of Gen Xers – many of whom may be saddled with high-interest federal parent PLUS loans – say their debt caused them to struggle in advance of the moratorium.”
Even before the pandemic, 11% of student loans were delinquent by at least 90 days.
Find out: Grants to Pay Off Student Loans
A necessary extension
Anticipating the resumption of payments, borrowers grew even more stressed than before. Previously, the pause on payments was scheduled to end in January. Americans are about 40 percent more stressed about making their payments now than they were then.
While campaigning, Biden promised widespread student loan forgiveness. As Debt.com reported, he promised to forgive $10,000 in student loans for all borrowers. He also promised to pay off the balance for any borrower who attended a public college or HBCU that makes less than $125,000 per year.
So far, he’s provided some loan relief for targeted groups but has yet to actually fulfill these promises. And based on his 2023 budget proposal, he doesn’t plan on doing so in the next year.
Some experts say that Biden should use the moratorium to actually fix the “broken” student loan system. Business Insider says the chair of the Senate education committee, Patty Murray, is one of those people.
“Everything we are asking to be done can be done at an administrative level,” Murray said. “That is the quickest way to get this moving. And we are encouraging them, asking them, begging them to please do that.”
Published by Debt.com, LLC