Millions of Americans with federal student loans have been able to skip monthly payments for almost two years now. But the deferral program for federal student loans, initiated in March 2020, comes to an end Feb. 1.
A survey by BestColleges.com and Bankrate estimates nearly seven in 10 borrowers with federal student loans will need to take additional action to be able to afford resuming the monthly payments, and 75% surveyed say at least one aspect of their personal finances will be negatively impacted when payments resume.
For borrowers in that boat, now is the time to start planning for February.
“The options most common that many Americans with federal student loans could turn to are either enrolling in an income-driven repayment plan, applying for more deferment or forbearance, and then even refinancing with a private lender. But there is fine print with pretty much all of these options,” said Sarah Foster, an analyst at Bankrate.
Most federal student loan borrowers who are taking advantage of the deferral program did not save that extra money. It most often been used to cover everyday living expenses or paying down other debts.
For those who continued making payments on their federal student loans — and about a third did — it has been a once-in-a-lifetime opportunity to meaningfully whittle down that debt.
“You also didn’t see your interest continue to accrue. If you were able to continue making payments during this federal student loan forbearance period, that probably was a very wise decision considering your payments really went father toward that principle loan balance,” Foster said.
Of those who have continued to make payments, 22% continued with the full amount, with others making some payment but less than the full amount.
For those facing the resumption of payments but not the ability to do so, the Bankrate/BestColleges survey found 32% said they’ll cut back on discretionary spending, 26% will try to find a higher-paying job, and 25% say they’ll need to take on a second job or a side hustle.