Student Loan Borrowers Concerned About Affording Payments After Pandemic Pause

After a more than three-year pause because of the COVID-19 pandemic, payments on federal student loans resumed in October, a reality forcing many borrowers to refocus on how they will keep up with repayment. A survey conducted for The Pew Charitable Trusts last fall reflected borrower concerns about affording their payments—and how the stop-and-go path to the recent restart would unfold. Many, in fact, seemed confused and unprepared for what would come next.

Much has unfolded since the survey was completed, including the federal government’s introduction of a critical new income-driven repayment (IDR) plan, Saving on a Valuable Education (SAVE). Still, the underlying findings reflect a need for the Department of Education and loan servicers to communicate effectively and consistently with borrowers.

Following months of seeing reports on new start dates and postponements, borrowers in the survey indicated significant concern about their ability to afford payments once the pause ended. Eight in ten (82%) of those who expected to have to make payments once repayment started again said that payments would be “somewhat” or “very” difficult to afford. Nearly 6 in 10 respondents (59%) said that they found making their student loan payments more stressful than other monthly bills. (See Figure 1).

Among that group, 40% said the most important reason they felt this way was that the payments were larger than other bills, while a comparable share (41%) said this was because they did not see their balances going down despite making on-time payments. Another 16% said the most important reason they found student loan payments more stressful was because they would be paying them longer than other bills.

To address these affordability concerns, the Education Department is implementing changes with the launch of SAVE, its new IDR plan. SAVE should lower regular payments for many borrowers and reduce balance growth for those making on-time payments. Starting in July 2024, those who borrowed $12,000 or less will be eligible for balance forgiveness after 10 years of payments—that's half of the 20 years required under the previous IDR plan, Revised Pay-As-You-Earn (REPAYE). The portion of income that borrowers will make payments on will be cut in half as well—from 10% to 5% of incomes above 225% of the federal poverty level for undergraduate loans. Under the REPAYE plan, which SAVE will replace, borrowers were paying 10% of incomes above 125% of the poverty level.

SAVE should substantially benefit low-income borrowers, but those not previously enrolled in REPAYE will need to actively enroll in the new plan.

Other recent changes are also intended to make the process work better for borrowers. For example, the Fostering Undergraduate Talent by Unlocking Resources for Education (FUTURE) Act allows data-sharing between Federal Student Aid (FSA) and the Internal Revenue Service (IRS), which will simplify the annual recertification process for SAVE and other IDR plans. Before implementation of the FUTURE Act, borrowers on IDR plans had to show proof of income and family size every year to continue qualifying for lower payments. When borrowers opt into the new automated data-sharing feature, FSA will receive information on borrowers’ income and family size directly from the IRS.

The results of the 2022 Pew survey also highlight that many borrowers had not taken actions to reduce or check on their loans up to that point in the payment pause. More than 4 in 10 borrowers (43%) whose loans qualified for the pause said they had not enrolled in an IDR plan, opted into auto-debit to make their payments automatically, continued payments on their loans, refinanced or consolidated loans, or attempted to cure default.

Because so many borrowers have not interacted with the repayment system in more than three years, clear communication from the Education Department and loan servicers regarding remaining balances, upcoming payment due dates, and new repayment options is necessary. Communications should target borrowers making payments for the first time, those who may have been delinquent before the pause, and those who had been in default previously to ensure that at-risk borrowers are aware of the changing loan environment.

Low borrower engagement during the pandemic becomes particularly relevant now because the borrowers who are most likely to benefit from SAVE may be the least likely to know about it. Because both the SAVE plan and the automatic recertification require borrowers to act, borrower engagement in the early months of repayment will be crucial to ensure that those resuming or starting payments benefit from the protections that these new changes offer. The department has announced that SAVE's complete provisions—including additional steps to boost payment affordability and a shortening of the forgiveness timeline—will be available by the summer of 2024. The department should clearly communicate these changes to borrowers amid efforts to avoid the confusion that a lengthy rollout could cause.

Both the SAVE repayment plan and the FUTURE Act should help improve the student loan repayment system. Yet, their implementation and ultimate success will depend on the ability of the Department of Education and loan servicers to communicate effectively with the many borrowers who disconnected from the repayment system during the payment pause as well as with those who are confused about repayment or concerned about affording payments. To ensure successful borrower engagement, Federal Student Aid will need increased funding in fiscal year 2024 and beyond.

This analysis is based on data from an online survey conducted for The Pew Charitable Trusts by SSRS, an independent research company, through the SSRS Opinion Panel. Interviews were conducted Nov. 17-30, 2022, among a recontact sample of 909 respondents. The margin of error with design effect for all respondents is +/-4.5 percentage points at the 95% confidence level.

Lexi West is a principal associate, Shelbe Klebs is a senior associate, and Richa Bhattarai is a senior associate with The Pew Charitable Trusts’ student loan initiative.