Student Loan Programs Ending: Are Borrowers Able to Pay?

After August 31, 2022, the pause on federal student loan payments and interest will come to an end. This student loan program went into effect to assist individuals financially affected by the Covid-19 pandemic, and it has been extended multiple times to account for the pandemic’s dynamic nature. As the pandemic has significantly improved in recent months, the federal government has concluded loan payments will resume, but the question now is how prepared will students be when this program expires?

The overall financial impact of the pandemic continues to this day, even as society has been able to slowly get back to work like they did before the pandemic started. While the federal student loan program was helpful in many respects, many don’t feel prepared to return to their payments, and it could lead to some widespread financial troubles come August 31.

37% of Student Loan Borrowers Feel Less Able to Pay

The Covid-19 pandemic has had far-reaching economic effects on many U.S households, many of which have had a hard time adjusting even with the help of federal financial stimulus packages and student loans pauses. On average, 37% of student loan borrowers feel less able to pay their loans compared to before the pandemic. And although the exact financial situation of borrowers may vary, this statistic still provides a clear illustration of how people will be affected by the end of the student loan program.

Google Survey Results

To get a better understanding of how prepared borrowers are for the conclusion of the student loan pause, a recent Google survey asked people about how well positioned they were to resume loan payments compared to before the pandemic. Out of 963 respondents, roughly 37% of those with student loans responded they felt worse about resuming payments. This provides an indication of how the pandemic has affected student loan borrowers, and how those same borrowers might struggle with payments in the future.

How the Pandemic Affected Student Loans

The Covid-19 pandemic has had sweeping effects on student loans, both positive and negative. As was previously mentioned, when the pandemic first began to accelerate in the U.S the federal government suspended loan payments, stopped collections on defaulted loans, and implemented a 0% interest rate to prevent loan payments from worsening as the pandemic progressed. 

This decision was further supported by the CARES Act once it became law on March 27, 2020, and although it was initially set to expire at the end of September that same year, it was extended multiple times to accommodate the evolving and ongoing nature of the pandemic to provide additional relief to those who needed it.

For those who have been willing and able to make payments during this time, they’ve benefited from the 0% interest rate the federal government put in place. Although their payments may not have been lower, they will still save more money overall because they were unaffected by their previous interest rate.

On the negative side of the situation, because the pandemic left many people unemployed for an extended period of time, and many of those same people still had to pay other bills, there has been little room left to save money towards loan payments. Many borrowers who have been getting back to work are still in the process of paying back more immediate bills, and once the student loan program ends, it will likely become a tremendous financial burden that exacerbates an already difficult situation.

Student Loan Cancellation Discussions

One topic of frequent discussion between borrowers and federal officials is student loan cancellation, where borrowers are no longer required to repay some or all of their loan due to various circumstances. The conversation on student loan cancellation was steadily gaining traction before the Covid-19 pandemic, but the resulting financial crisis has made it a frequent talking point over the last two years. While the idea of canceling all student loan debt has been passed around, the federal government has been hesitant to make that commitment, and has instead opted for incremental cancellations for eligible borrowers.

It is rare a person’s entire debt may be canceled, and in some cases the eligibility requirements may exclude a wide range of borrowers who would greatly benefit from a partial or complete cancellation. As dire as the national and global financial situation is for many borrowers because of Covid-19, there is an overall reluctance to implement sweeping cancellations because of how reliant lenders are on loan repayments. There is a perceived greed on the part of borrowers towards these lenders as a result, but the overall complexity of the situation makes it much more nuanced than it may appear.

Preparing for the End of Student Loan Forbearance

As August 31 comes closer with the passing of each day, student loan borrowers will have to prepare for their payments to resume and their interest to continue building. For those who have been able to take advantage of student loan forbearance, there are ways to adjust your student loan debt to your benefit so you’ll be better prepared for regular payments and interest to resume. And for those who have not been able to make substantial payments during this suspension period, now is the time to make whatever payments possible before things go back to normal.

Refinance

Refinancing a student loan can have many benefits, the most significant being the ability to lower your interest rate or take on a more favorable payment plan. These benefits can be helpful no matter the circumstances, but they can be particularly advantageous during the current student loan pause. If you qualify for refinancing, and the process can be completed before the August 31, 2022 deadline, you could restart your loan repayment with a lower interest rate than the one you started with. You could also use refinancing to adjust your payment plan towards your current financial situation if the pandemic has made it more difficult to pay any bills.

If you opt for refinancing, it’s important to do it as close to the August 31 deadline as possible, as you may miss out on any loan forgiveness that happens between now and then. You may also have to continue making scheduled payments with accruing interest, as the loan will now be managed by a private lender and not the federal government.

Pay Extra Each Month

If you have been able to make forbearance payments during the student loan pause, it would be wise to take advantage of your stagnant interest rate and pay more than you usually would each month. Not only will this move your repayment timetable forward, but it also makes any interest accrued less severe than it would have been otherwise. Even if it’s only a small percentage more than you would pay each month, it serves to lessen the burden of your loan once repayments resume after August 31.

What People With Student Loans Can Do

If you have student loans and you’re worried about the continuation of your payments and building interest, there are ways to prepare for August 31. 

If you believe you may qualify for student loan forgiveness, complete the U.S. Department of Education’s application, and you will be notified if you meet their eligibility requirements. You may also seek out refinancing if you wish to make changes to your repayment plan, but it’s important to consider you will lose many of the protections that come with a federal loan. 

The best thing to do no matter your financial situation is to assess how much money you need to contribute towards your loans once the pause concludes. This helps prevent loan repayments from completely derailing your current finances, and ensure you know what to expect when they resume. It’s no secret many people don’t feel completely comfortable with repaying their loans in the coming months, but it’s best to prepare in any way possible to lessen the impact when the time comes.