Student loan borrowers with a job are not ready to pay off their debt

  • A new survey from the Student Debt Crisis Center has found that 89% of fully employed borrowers are not financially secure enough to restart payments.
  • Almost a third of these borrowers will spend a third of their income on debt repayment next year.
  • This means borrowers will be even more strapped for cash as prices across the country continue to rise.

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On February 1, 2022, the relief that student loan borrowers have enjoyed since the start of the pandemic will be removed and they will be sent back to repayment – whether they are ready or not.

And most of them are not.

The Student Debt Crisis Center, in partnership with Savi, a social impact tech startup, released the results of the fourth installment of the Student Debt x COVID-19 Wednesday series examining the impact of the pandemic on student loan borrowers. He found that although communication between student loan companies and borrowers has improved since June, 89% of fully employed borrowers say they don’t feel financially secure enough to resume their payments in a few months.

One in five respondents said they would never feel financially secure enough to restart their student loan payments.

“What we’ve seen this time around is that student loan borrowers are being told by their loan officer and the Department of Education about higher rates, and student loan borrowers are actually employed at very high rates, ”Cody Hounanian, executive director of the Student Debt Crisis Center, told Insider. “And despite this good news, nine in ten borrowers say they are not ready to resume their payments on February 1.”

Hounanian added that even though these borrowers have full-time jobs, 27% of those polled said that one-third of their income would go towards making monthly payments, and one in ten said half of their income would go to making monthly payments. directly to repay his student debt.

“When we think of this huge chunk of their income that goes into student loans at a time when the country is talking about rising inflation and rising costs, it’s a recipe for financial disaster,” Hounanian said. .

Aaron Smith, co-founder of Savi, told Insider that among the full-employed borrowers in the survey, their average income is around $ 63,000, and “the idea that more than 10% versus one-third of their income could be spent on their student loans is a good explanation of why they are feeling this financial anxiety. ”

Other key findings from the 33,000 survey responses include:

  • 88% of respondents said freezing pandemic payments was critical to their financial well-being during the pandemic;
  • 87% said the relief allowed them to make payments on other bills during the pandemic;
  • 44% of fully employed borrowers said they were in default or could not afford to make payments;
  • And 45% of those surveyed said their financial well-being is currently bad or very bad.

The pandemic student loan payment hiatus has given borrowers the opportunity to forget about their student debt and devote their income to basic necessities and bills. For example, a borrower already said Insider the pandemic break allowed her to fully pay her medical bills for having a baby, and many others have reported extreme anxiety that accompanies making payments again in just a few months.

“Restarting the payments makes me very anxious because I somehow have to find that extra $ 200,” Gwen Carney, a single grandmother with $ 75,000 in student debt, previously Recount Initiated. “I just don’t have it.”

Even after pandemic payments pause, millions of borrowers are no better off

Insider reported on Tuesday that, based on new data from the Department of Education, of the 7.7 million borrowers who were in default on their loans at the start of the pandemic, 93% of them are still.

The ministry would consider a “security net” for borrowers once payments are resumed, one of which could include automatically wiping overdue payments for 7 million borrowers and giving them a “fresh start”. However, details of those plans have yet to be finalized, leaving borrowers with minimal information on what to expect on February 1.

“It’s pretty clear that student loan borrowers aren’t ready to resume their payments,” Hounanian said. “So we really ask the Department of Education to provide advice, to be clear about the options available to student loan borrowers, and to ensure that the process that student loan borrowers will follow is clearly defined. as soon as possible. .”