- One-in-five respondents reported they have outstanding federal student loans
- 53% of respondents with outstanding federal student loans say their financial stability depends on their loans being forgiven
- About a quarter (26%) of respondents with outstanding federal student loans say the money they previously paid toward their student loans is now being used for bills and necessities
In November 2022, The Supreme Court voted to temporarily block President Biden’s plan to cancel federal student loans for qualifying student loan borrowers. With forgiveness plans in limbo, federal student loan payments are set to resume this summer, or potentially sooner, raising concerns for borrowers whose finances may have taken a toll from today’s high cost of living.
According to a study conducted by Qualtrics on behalf of Credit Karma, of the one-in-five consumers with outstanding federal student loans, more than half say their financial stability depends on their student loans being forgiven (53%). In the same vein, 56% of respondents say their financial stability is dependent on not having to make payments as the forbearance period remains intact.
Payment concerns among borrowers hold strong
In a similar Credit Karma study conducted in October 2021, 58% of federal student loan borrowers said their financial stability depended on their payments being paused during the COVID-instated forbearance program. As we near the three-year mark of payments being paused, it appears that peoples’ financial situations have stayed largely stagnant, leaving many borrowers stressed and unprepared to resume payments in the coming months. In fact, in this latest study, a majority of respondents reported their financial situations remained stagnant or declined in 2022 (68%).
Where is that money going?
While inflation may be cooling, borrowing costs continue to climb as the Fed just instated its eighth consecutive rate hike, and consumers still face high prices for areas that significantly impact day-to-day life, including shelter, food and energy. As a result, borrowers may be spending more money on necessities like rent, utilities and groceries, leaving less or no money to put towards savings and other bills, such as their student loans.
When asked how much money borrowers have been able to save while federal student loan payments are paused, 26% of borrowers said they weren’t able to save any money. That’s because the money previously used to pay off their student loans is now being used for other bills and necessities.
While the fate of President Biden’s proposed student loan forgiveness plan remains unclear, low and middle-income borrowers could see some relief further down the road with the U.S. Department of Education’s proposed changes to the Income Driven Repayment (IDR) program, which could lower monthly payments by as much as half.
“Federal student loan payment relief has served as a financial lifeline for millions of Americans who have grappled with a lot of uncertainty over these last three years. With payments set to resume this summer, or potentially sooner, borrowers should start budgeting now,” said Courtney Alev, consumer financial advocate at Credit Karma. “Start by looking back at the past six months and determine how much you now need monthly for necessities like groceries, rent and utilities. Then, factor in your student loan payments and other bills such as your car payment. You may need to reallocate funds and dial back in your ‘wants’ category until inflation trends down, you make headway on your student loans and eliminate or reduce payments, or your income increases.”
This survey was conducted online within the United States by Qualtrics on behalf of Credit Karma on December 6, 2022 among 1,009 adults ages 18 and older.