Credit Karma Inc.

10/25/2021 | News release | Distributed by Public on 10/25/2021 10:10

Student loan payments resume soon, some Americans are not financially prepared

  • Nearly half (48%) of respondents with outstanding student loans are currently not making payments - 39% of those say they are using that money to pay for necessities.
  • Of those who have outstanding student loan debt, 58% say their financial stability is dependent on the pausing of payments through the current forbearance program.
  • 63% of those with outstanding student loan debt are concerned about their ability to make payments once the forbearance period ends in January 2022.

$1.7 trillion dollars. That is how much outstanding student loan debt Americans face today. As the last stretch of COVID-era protections come to a close, ~43 million student loan borrowers are expected to resume payments at the beginning of next year. The magnitude of student loan debt in this country is a uniquely American problem. Combine that with a global pandemic that has created financial instability for a large swath of Americans and you have a situation where many people are dependent on government aid, also known as forbearance programs, to afford basic necessities.

According to a study by Qualtrics on behalf of Credit Karma, one in five respondents have outstanding student loan debt. Of those, nearly half (48%) are not currently making payments. Instead, 39% of those who are not currently making payments say they are using that money to pay for necessities. What's more concerning is that those with outstanding student loan debt have had to sacrifice necessities like groceries (34%) and making rent payments (23%) in order to maintain their student loan payments.

This trend is reflected in how consumers currently feel about their finances overall. According to the study, one-third of respondents do not feel financially stable right now. The top factors driving this feeling of financial instability include not having money saved (62%), not having an emergency fund (47%) and not having money to pay bills (37%). This can likely be attributed to consumers' finances taking a hit during the pandemic, considering 37% of all respondents said their financial situation has worsened since the beginning of the pandemic.

Here's a look at why people are not feeling financially stable right now:

I don't have money saved 62%
I don't have an emergency savings fund 47%
I don't have money to pay my bills 37%
I'm unable to find work 21%
I don't have money to pay medical costs 20%
I lost my job or experienced a pay cut 17%
I cannot afford to pay my rent 17%
*Among respondents who don't currently feel financially stable

Forbearance provides a safety net for many, but borrower concern looms ahead of January deadline

While many Americans seem to be financially stable, with more than half of respondents (52%) continuing to make payments toward their student loans, that's not the case for all Americans. According to the study, well over half (58%) of those with outstanding student loans say their financial stability is dependent on the ability to pause payments as part of the federal student loans forbearance period ending in January 2022. What's more, 63% of those with outstanding student loan debt are concerned about their ability to make payments once the forbearance period ends on January 31, 2022.

Men fare better than women, across the board

It's worth noting, when looking at overall financial stability and how it impacts consumers' ability to pay down debt, women fare worse than men. For instance, 40% of women do not feel financially stable compared to nearly a quarter of men (27%).

This trend could correlate with why more women (25%) have outstanding student loan debt compared to men (16%), and why 61% of men are continuing to make payments toward their student loans compared to just 47% of women.

"Student loan debt was on the rise well before the pandemic began with many people struggling to keep up with payments. It's likely this problem was only exacerbated by the pandemic, setting people back further financially," said Josh Dockery, staff product manager at Credit Karma. "While student loan forbearance has served as a safety net for many borrowers, especially as a majority of other pandemic era protections have expired, resuming payments in a few months is a stark reality some consumers aren't ready to face. If you're unclear about which type of loans you have or concerned about being able to resume payments, reach out to your lender or servicer now to discuss your options. You may find that you qualify for relief or more manageable repayment options. Most importantly, don't wait until the end of January to do so."

Methodology

On behalf of Credit Karma, Qualtrics conducted a nationally representative online survey in October 2021 of 1,020 Americans, aged 18 and above, to gauge how consumers are feeling in terms of their financial stability heading into the holiday season, particularly those with outstanding student loans.