Report: A Fifth of Student Loan Borrowers Have Made No Payments
A recent survey has revealed that one in five borrowers with outstanding student loans have made no payments, with many waiting for potential debt relief.
Survey Findings
The survey, conducted by Intuit Credit Karma and released on September 5, found that 20% of student loan borrowers have not made any payments on their loans. This figure increases to 27% among borrowers with a household income of less than $50,000.
More than half (55%) of respondents reported being unable to afford their student loan payments, while almost half (49%) said they feel “financially unstable.” The survey highlights the financial strain faced by borrowers, largely due to the high cost of living (69%). Many loan holders reported having to make difficult trade-offs, with 38% saying they are falling behind on other bills—like auto loans, mortgages, or credit card payments—to meet their student loan obligations. Additionally, 39% of borrowers said they are prioritizing paying off higher-interest debt over their student loans.
Financial Struggles of Younger Borrowers
The report also sheds light on the challenging financial situations of younger borrowers. For instance, 44% of Gen Z and 41% of millennial borrowers reported having depleted their savings to manage student loan payments. Overall, about one-third (34%) of all borrowers surveyed reported having $0 in savings.
Implications of Non-Payment
Borrowers who have not been making payments need to be aware that their credit scores could be affected once the federal government’s “on-ramp” grace period ends, according to the survey. During this one-year transition period, payments are due and interest accrues, but missed payments won’t be considered delinquent, placed in default, or reported as such to creditors or debt collectors.
When the grace period ends on September 30, borrowers will again face the usual consequences of missed payments, including default. Defaulting on a loan can damage one’s credit score and may result in the federal government garnishing wages, seizing tax returns, and intercepting Social Security benefits.
The survey suggests that some borrowers appear to have taken “irresponsible advantage” of the soon-to-expire relief. About one in seven (15%) of those who have not been making consistent on-time payments admitted they were intentionally avoiding payments, knowing their credit scores would not be impacted during the grace period.
Uncertainty Around Biden’s SAVE Plan
“With Biden’s SAVE plan in limbo, many borrowers face uncertainty about whether they will benefit from lower monthly payments and a clear path to loan forgiveness,” said Courtney Alev, a consumer financial advocate at Intuit Credit Karma.
The SAVE plan was designed to reduce monthly payments for borrowers and accelerate the path to having their balance discharged. Approximately 7.5 million borrowers have already signed up for the SAVE plan, and 150,000 have had their debt erased.
However, two groups of Republican state attorneys general challenged the plan in two federal district courts. They argued that the Biden administration lacks the legal authority to implement the plan and that it contradicts the U.S. Supreme Court’s decision last summer that struck down an earlier attempt at large-scale student loan cancellation.
On August 28, the Supreme Court denied the Biden administration’s emergency request to temporarily reinstate the SAVE plan. This is not a final ruling, and either or both cases could return to the high court once the federal appeals courts rule on the merits of the dispute.
The survey was conducted online within the United States by Qualtrics on behalf of Intuit Credit Karma between August 3 and August 19 among 1,995 adults ages 18 and older with outstanding student loan debt.
Bottom Line
The financial strain of student loan debt is evident, with many borrowers unable to make payments and feeling financially unstable. The potential expiration of the grace period and the uncertainty surrounding Biden's SAVE plan add to this stress. What are your thoughts on this issue? Do you believe there should be more support for student loan borrowers? Share this article with your friends and encourage them to join the discussion. Remember, you can sign up for the Daily Briefing, which is delivered every day at 6pm.