by Jeniffer Solis, Nevada Current
As the two-year pause for federal loan payments is set to end in May, one in three borrowers say they reduced spending on necessities like food, rent, and healthcare in preparation for payments to restart, according to a national survey of student loan borrowers.
Despite extensive efforts to save, the national survey of more than 23,000 student loan borrowers in the U.S. from Feb. 1 to Feb. 15, 2022 found that nine in ten borrowers say they are not prepared to resume payments on May 1 and another 27% say they will never be able to resume payments again.
The survey by the Student Debt Crisis Center, the nation’s largest student debt advocacy organization, and Savi, a social impact technology company, found that financial instability for borrowers has only worsened in recent months due to rising inflation costs on everything from groceries to rent to gas.
Nine in ten fully employed student loan borrowers believe rising costs will make it harder to afford their payments. About 85% of survey respondents reported the payment pause is financial relief they currently depend on, with low-income and working-class borrowers even more likely to use monthly savings from federal payment pause to pay for essentials like food or healthcare.
“We have followed the experiences of student loan borrowers for over two years and we are saddened to report their circumstances are getting worse. Our findings show that the ongoing pandemic combined with unprecedented inflation are huge obstacles for borrowers who are, by and large, not ready to resume payments, struggling to afford basic needs, and confused about their options moving forward,” said Natalia Abrams, President and Founder of the Student Debt Crisis Center.
Borrowers haven’t had to make payments since March 2020, when former President Donald Trump signed the CARES Act, which paused payments through September 2020 and froze interest for roughly 42 million borrowers. The pause was later extended by President Joe Biden three times. In December, he extended the pause through May 1.
The survey suggests that pause has been critical for borrowers who found themselves in economic turmoil during the pandemic. About 61% of respondents who could easily afford their student loan payments before the COVID-19 pandemic began are either struggling to make payments, cannot make payments, or are in default, according to the national survey.
In Nevada, nearly 50% of borrowers say they can’t make monthly student loan payments due to the pandemic, nearly double the amount of borrowers who couldn’t 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 are “very concerned” about inflation making it harder to pay student loans once they restart in May.
“Now because of Covid and higher renting costs, childcare costs, food costs and everything else right now, I’m just kind of nervous about payments starting,” said Sabrina Renteria, 31, who works as a consultant for a financial firm specializing in grant financial management. “We’re still living paycheck to paycheck with a master’s degree.”
Currently a doctoral candidate at California Baptist University, Renteria, grew up in a low-income one-parent household and says she was only able to attend college thanks to various federally guaranteed student loans. Those loans, however, landed her into a debt she doesn’t think she can ever pay off. What started as $80,000 in student loans grew to over $100,000 after years of interest.
“The reality is that it’s not so easy to pay it back after you’re done,” Renteria said. “It really is permanent debt.”
Homeownership 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 unattainable.
“You can pay all your bills every month forever, but as soon as they look at how much debt you really have it’s a huge hindrance,” Renteria said. “Even when we went to buy our car we had to justify our debt.”
About 77% of Nevadan’s surveyed said federal student loan relief is critical to their financial wellbeing and made it possible to afford other bills during the pandemic. Another 67% said they are currently dependent on the student loan payment pause for financial relief.
Before the pandemic, Nevada resident Kristina McManus, was covering her monthly student loan debt of $270 as a professional photographer, but the strain of the payment on her budget each month caused her to miss car insurance payments, postpone medical care, cut down on groceries, and eliminate nearly all non essential spending.
“It seemed like every month was a juggling act, just scraping by paycheck to paycheck,” McManus said.
McManus borrowed $86,000 in both federal and private student loans to study photography and marketing at Savannah College of Art and Design, but that amount eventually ballooned to $127,000 after interest and forbearance fees stacked up. Under current federal programs, McManus says she doesn’t see a path to paying off her student loan debt.
Once payments start again in May, she fears balancing her monthly spending will only be more difficult.
“I definitely think it’s going to cause financial strain especially since the cost of groceries, gas, rent, and everything else is skyrocketing now,” McManus said.
Extra monthly savings created by the pause in student loan payments was largely spent on necessities like food, rent, and utilities in Nevada. Nearly 75% of borrowers surveyed in Nevada said they used their monthly savings from not paying student loans on groceries.
Another two in three borrowers said they used the money on utilities, and 70% said they used it to pay rent or a mortgage. Nearly 56% used the extra cash to pay down credit card debt.
McManus used the money she didn’t have to spend on her federal student loan payments to pay down credit card debt and private student loans. The moratorium doesn’t apply to borrowers with privately held loans.
Nine in ten Nevada survey respondents said they are looking for full federal student debt cancellation from candidates’ policy platform for the 2022 midterm elections. The student debt crisis has also caused a significant dip in how Nevadan’s view President Joe Biden’s administration.
About 63% of those surveyed in Nevada said the Biden administration’s response to student debt has been “poor” or “very poor.”
After Biden campaigned on partial student debt relief for all U.S. borrowers, McManus was hopeful he would fulfill those promises despite his past role in backing a 2005 bill that stripped students borrowers of bankruptcy protections and left millions in financial stress.
“I’ll be honest, I did vote for Biden because student loans are an aspect that really affects my day to day financial well being,” McManus said. “Even though he was the one that put the bankruptcy laws in place preventing you from dismissing your student loans I thought maybe he had turned 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 through the midterm elections.
In the letter last week, a coalition of lawmakers, including Nevada Rep. Dina Titus, urged 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 prepared to start making payments again in May, including a report from the Government Accountability Office that estimates about half of all federal student loan borrowers are at “increased risk of delinquency.”
“I wish people understood the actual cost of college nowadays,” McManus said. “I just wish people understood the true amount. The interest rates on student debt incur so fast that we can barely even keep up with it.”
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