As the two-year break as federal loan repayments are due to end in May, one in three borrowers say they have cut back on basic necessities like food, rent and healthcare in preparation for restarting payments, according to a national survey of student borrowers .
Despite considerable efforts to save, the national survey of more than 23,000 student borrowers in the United States from February 1 to February 15, 2022 found that nine in ten borrowers say they are not ready to resume payments on May 1 and another 27% say they will never be able to resume payments again.
The investigation by the Student Debt Crisis Center, the nation’s largest student debt advocacy organization, and Savi, a social impact technology company, found that borrowers’ financial instability has only worsen in recent months due to rising inflation costs on everything from groceries to rent to gas.
Nine out of 10 students who take out a full-time student loan think rising costs will make it harder to pay their fees. About 85% of survey respondents said the payment break is a financial relief they currently depend on, with low-income and working-class borrowers even more likely to use the monthly savings from the payment break federal government to pay for essentials like food or health care.
“We have been following the experiences of student borrowers for over two years and are saddened to hear that their situation is getting worse. Our findings show that the ongoing pandemic, combined with unprecedented inflation, pose huge hurdles for borrowers who overall are not ready to resume payments, are struggling to meet their basic needs and are confused about their options moving forward,” said Natalia Abrams, President and CEO. Founder of the Student Debt Crisis Center.
Borrowers have not had to make payments since March 2020, when former President Donald Trump signed the CARES Act, which suspended payments until September 2020 and froze interest for about 42 million borrowers. The hiatus was later extended by President Joe Biden three times. In December, he extended the break until May 1.
The survey suggests the break has been essential for borrowers who have found themselves in economic turmoil during the pandemic. According to the national survey, about 61% of respondents who could easily pay their student loans before the onset of the COVID-19 pandemic are struggling to make payments, cannot make payments, or are in default.
In Nevada, nearly 50% of borrowers say they cannot make monthly student loan payments due to the pandemic, nearly double the number of borrowers who could not make monthly payments before the pandemic. according to a state-specific report of 142 student loan borrowers.
About 78% of Nevada borrowers surveyed said they were “very concerned” about inflation making it harder to repay student loans once they restart in May.
“Now because of Covid and higher rental costs, childcare costs, food costs and everything else right now, I’m just a little nervous about starting the payments,” said Sabrina Renteria, 31, who works as a consultant for a financial firm specializing in the financial management of grants. “We’re still living paycheck to paycheck with a master’s degree.”
Currently a doctoral student at California Baptist University, Renteria, grew up in a low-income single-parent family and says she was only able to attend college thanks to various federally guaranteed student loans. These loans, however, have caused her to incur debt that she doesn’t think she will ever be able to repay. What started as $80,000 in student loans grew to over $100,000 after years of interest.
“The reality is, it’s not that easy to pay it back once you’re done,” Renteria said. “It really is a permanent debt.”
Home ownership is out of reach, said Renteria, who rents a home in Reno. Her children and husband would like to own their own home, but the family’s debt-to-income ratio makes a mortgage impossible to obtain.
“You can pay all your bills every month forever, but as soon as they look at how much debt you really have, that’s a huge hurdle,” Renteria said. “Even when we went to buy our car, we had to justify our debt.”
About 77% of Nevada respondents said federal student loan relief is critical to their financial well-being and helped pay other bills during the pandemic. Another 67% said they currently depend on student loan payment suspension for financial relief.
Before the pandemic, Nevada resident Kristina McManus covered her monthly student loan debt of $270 as a professional photographer, but the pressure of paying on her budget each month caused her to miss car insurance payments, postpone medical care, cut back on groceries, and eliminate almost all non-essential expenses.
“It seemed like every month was a juggling act, just scraping by paycheck,” McManus said.
McManus borrowed $86,000 in federal and private student loans to study photography and marketing at Savannah College of Art and Design, but that amount eventually soared to $127,000 after interest and forbearance charges accrued . Under current federal programs, McManus says she sees no way to pay off her student loan debt.
Once payments resume in May, she fears it will be more difficult to balance her monthly expenses.
“I really think it’s going to cause some financial hardship, especially since the cost of groceries, gas, rent and everything else is skyrocketing now,” McManus said.
The additional monthly savings created by the pause in student loan repayments have largely been spent on necessities like food, rent and utilities in Nevada. Nearly 75% of borrowers surveyed in Nevada said they used up their monthly savings by not paying their student loans for groceries.
Another two in three borrowers said they used the money for utilities, and 70% said they used it to pay rent or a mortgage. Nearly 56% used the extra money to pay off their credit card debt.
McManus used the money she didn’t have to spend paying off her federal student loans to pay off her credit card debt and private student loans. The moratorium does not apply to borrowers with private loans.
Nine out of 10 Nevada survey respondents said they were seeking complete federal student debt cancellation from the political platform of candidates for the 2022 midterm elections. The student debt crisis has also caused a significant drop in how Nevadan views President Joe Biden’s administration.
About 63% of Nevada respondents said the Biden administration’s response to student debt was “poor” or “very poor.”
After Biden campaigned for partial student debt relief for all U.S. borrowers, McManus hoped he would keep those promises despite his past role in supporting a 2005 bill that stripped student borrowers of protections. against bankruptcy and left millions of people financially stressed.
“I’ll be honest, I voted for Biden because student loans are something that really affects my day-to-day financial well-being,” McManus said. “Even though he was the one who put the bankruptcy laws in place preventing you from dismissing your student loans, I thought he might have turned over a new leaf.”
“Now I don’t think he’s going to do anything,” McManus said.
Biden has faced growing pressure from some Democrats and debt relief advocates to keep loan payments on pause at least until the midterm elections.
In last week’s letter, a coalition of lawmakers, including Nevada Rep. Dina Titusurged the Biden administration to provide more details on its plans to restart federal student loan payments, expressing concern that the federal government is not prepared to properly notify student borrowers before payments resume on May 1.
The letter cited recent studies that show borrowers are not ready to start making payments again in May, including a report from the Office of Government Accountability which estimates that about half of all federal student loan borrowers are at an “increased risk of delinquency.”
“I wish people understood the true cost of college these days,” said McManus. “I just wish people understood the real amount. Interest rates on student debt are rising so fast we can barely keep up.