More than two-thirds of U.S. adults with federal student loans report needing to take additional action to afford their student loan payments when payments resume in February, according to a survey from Bankrate and BestColleges.

Federal borrowers haven’t had to make a student loan payment since March 2020, when the government established a temporary freeze on payments and interest charges in light of the coronavirus pandemic. After several extensions, the forbearance period is set to expire on Jan. 31, 2022, meaning millions of borrowers will be on the hook for their federal student loan payments for the first time in nearly two years.

As the Jan. 31 deadline approaches, many borrowers are not optimistic about returning to normal, the new Bankrate survey shows. Only 31 percent anticipate returning to their previous repayment schedule, while 18 percent don’t have a plan for repayment when the relief period ends.

Key findings

• Most U.S. adults with federal loans say their finances will be negatively affected when payments resume.
• Only 22 percent of federal borrowers made their regularly scheduled payments during the forbearance period.
• 18 percent of borrowers don’t have a plan for their student loans once the relief period ends.

Most U.S. adults with federal loans say their finances will be negatively affected when payments resume

Of the U.S. adults with federal student loans surveyed, 75 percent report that some aspect of their finances will be negatively impacted once the administrative forbearance period ends. Forty-three percent report that their ability to bolster an emergency fund or save for retirement will be stunted, while 39 percent are anticipating a drop in discretionary income. More than a third of respondents say that it will be harder to pay for everyday necessities, like groceries or household bills, come February.

To compensate for the renewed payments in February, 32 percent of respondents plan to cut back on discretionary spending, 26 percent need to find a higher-paying job and 25 percent say that they’ll need to take on a second job or a side hustle.

Among those who anticipate negative financial impacts, millennials are the hardest hit; only 21 percent of millennials (age 25 to 40) expect no negative financial impact, while 39 percent of baby boomers (age 57 to 75) report the same. Millennials are also much more likely to need higher-paying jobs to afford their payments at the end of the relief period: 30 percent, compared to 14 percent of baby boomers.

“Younger workers were most impacted by job losses and income disruptions during the pandemic,” says Greg McBride, CFA, chief financial analyst for Bankrate. These workers, even if employed, might be trying to rebuild their savings or pay down debt that they may have incurred during the pandemic.

McBride adds that borrowers also are grappling with the recent surge in inflation, “driving everyday costs higher and meaning the paycheck doesn’t go as far as it did earlier in the year.”

Only 22 percent of federal borrowers made their regularly scheduled payments during the forbearance period

With no obligation to make federal student loan payments, which in many cases can total hundreds of dollars each month, many borrowers took advantage of the administrative forbearance period by using their student loan payments to pay for other necessary expenses. Forty percent used the money to pay for everyday expenses and household bills, while 24 percent used the money to pay for housing or rent.

A 0 percent interest rate also freed up borrowers to cut down higher-interest debt, like credit cards. The average interest rate on credit cards is above 16 percent, and the average personal loan rate is more than 10 percent; the student loan payment pause allowed borrowers to save money in interest and pay off that debt more quickly without sacrificing their student loans. Rather than pay off their student loans as scheduled, 31 percent of federal borrowers surveyed funneled their monthly payments into existing debt, like credit cards, personal loans or private student loans.

With that said, borrowers had the option to make federal loan payments during the payment pause and cut down their principal balance without extra interest charges. Twenty-two percent of federal borrowers reported sticking to their regular repayment schedule, and 15 percent put some money toward their federal loans, even if it was less than normal.

18 percent of borrowers don’t have a plan for their student loans once the relief period ends

With Jan. 31 quickly approaching, many borrowers have started thinking about how they will adjust to the resumption of normal student loan payments. Most are choosing to continue normal repayment (31 percent) or enroll in an income-driven repayment plan (29 percent). Others will apply for more deferment (16 percent) or refinance with a private lender (5 percent).

“It’s encouraging that most borrowers have already considered strategies for resuming payments in anticipation of deferment ending,” says Melissa Venable, Ph.D., education adviser for BestColleges.

Nearly 1 in 5 borrowers (18 percent) don’t have a plan in place for their federal student loans. Those borrowers should keep an eye out for communication from their loan servicer about when, exactly, their next payment will be due. Borrowers can also reach out to their servicer about what their options are if they anticipate financial challenges; it can take time to process applications for new repayment plans or deferment, so it’s best to act as early as possible.

How to prepare for the end of the forbearance period

For those without a plan for resuming payments, McBride suggests starting to budget now. Take a look at your finances and see if you’re in good shape to continue making your payments. You should also take advantage of the federal protections and benefits that are offered to you, especially if you’ve experienced a recent loss in income and need a lower monthly payment.

Some options available to borrowers include:

• Income-driven repayment plans: There are several types of income-driven repayment (IDR) plans available through the federal government, which base your monthly payment on your family size and discretionary income for a set number of years — 20 or 25. These plans can be particularly helpful if you’re not earning as much as you were prior to the pandemic.
• Deferment or forbearance: The current payment pause is classified as an “administrative forbearance,” and it doesn’t count toward your normal forbearance limits. If you’re in between jobs or struggling to make any payment at all, you can apply for additional months of payment relief with your lender.
• Loan consolidation: While consolidating your federal loans into a Direct Consolidation Loan won’t save you any money, it can lower your monthly payments, since you’ll have the option of extending your repayment term.
• Refinancing: If you took out your student loans when interest rates were high, you might choose to look into refinancing with a private lender. Refinancing with a private lender will cause you to lose the benefits above, so it’s not the right choice for many federal borrowers. If you can get a low interest rate, however, refinancing could help you accelerate your repayment.

Methodology

Bankrate.com and BestColleges.com commissioned YouGov PLC to conduct the survey. All figures, unless otherwise stated, are from YouGov. Total sample size was 4,773 adults, including 770 with federal student loan debt. Fieldwork was undertaken Nov. 3 through Nov. 9, 2021. The survey was carried out online and meets rigorous quality standards. It employed a nonprobability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results.