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The federal student loan payment moratorium that took effect in 2020 was designed to provide financial relief to borrowers during the COVID-19 pandemic and put them in a better position to resume payments when the moratorium ends.
But two years later, many borrowers are still not financially ready to start making payments again, and a significant portion are unaware that President Biden recently extended the payment pause, according to a new survey from the fintech firm. Payitoff.
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The survey of 1,000 student borrowers found that 52% of respondents said they couldn’t make a single monthly payment today if they had to. Additionally, nearly a third are unaware that Biden extended the payment break until August 31, 2022 last month.
More than six in 10 (64%) said they would not make any payments until required by law, while four in 10 “have no idea” if their payments will be more or less than the end of the break. Another 55% think the break will be extended again in August.
The fact that more than half of respondents are financially unable to resume payments shouldn’t come as a huge surprise, Payitoff CEO Bobby Matson told GOBankingRates.
“After two years of non-payment of their federal debt, most borrowers have already replaced this item in their budget. Since few are aware of their flexible federal repayment options (such as income-driven plans), most perceive that the first payment after the break will be impossible to make,” said Matson, whose company provides advice on student loans and digital enrollment, and enables financial institutions to provide customers with student loan refinancing and restructuring options.
Another problem, he said, is that 15 million borrowers have switched in the past year, “so many people may not have up-to-date contact information with their new services”.
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Sixty percent of respondents said they had taken no proactive steps to refinance, restructure or seek forgiveness of their student loans. Meanwhile, a similar percentage (61%) used the money saved from the payment moratorium to pay for necessities such as gas and groceries. About a third used the money they saved for one of the following: savings, family/childcare or other debt.
Today, many of those same borrowers say they wish they had invested the money in other things. Had they known the payment break would have lasted this long, nearly a quarter of respondents would have put the money into retirement savings and a fifth would have saved for a house or car.
Part of the problem is that many borrowers have been confused by the way student loan payments have been handled by regulators.
“This fact underscores a larger problem that student borrowers have faced for decades: a lack of regulatory clarity, which makes it impossible to make important financial decisions,” Matson said. “How do I decide on a mortgage payment in my budget if I don’t know how much my student loan will be? »
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