When the Student Loan Pause Ends, Almost Half of Borrowers Expect to Miss Payments

After a moratorium of more than three years, federal student loan payments resume in October. A new survey suggests many borrowers aren't ready.

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Dan Avery

Aug. 19, 2023 6:00 a.m. PT

2 min read

Post-it that says "delinquent loan" — More than half of federal student loan borrowers say they'll have to choose between making a loan payment or paying for necessities like rent or groceries, according to a Credit Karma survey.
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Federal student loan payments resume in October and, according to a new survey from Credit Karma, many borrowers aren't prepared. Some 45% of respondents said they expect to fall behind on their payments once the forbearance ends.

"While many borrowers were able to get ahead in other areas of their finances during forbearance, others struggled to stay on top of other bills and expenses," Credit Karma consumer finance advocate Courtney Alev said in a statement.

In many cases, Alev added, inflation and increased interest rates swallowed up any chance they had of getting ahead.

According to the survey, 53% of borrowers were already struggling to pay bills before factoring in an expense they haven't had to consider for nearly three-and-a-half-years. Thirty-seven percent said they didn't set aside any money in advance of payments resuming and more than half (56%) said they'll have to choose between their student loans and basic necessities like rent or groceries.

Conducted by The Harris Poll between July 25 and 27, the CreditKarma survey polled 2,059 US adults, 394 of whom had outstanding federal student loans.

Unsurprisingly, those in a less secure financial situation are more at risk: 53% of borrowers with a household income of less than $50,000 expect to go delinquent -- defined as missing at least one loan payment -- compared with just 36% of those earning $100,000.

Thankfully, the consequences won't be as severe as they could be: In June, the Biden administration announced a yearlong transition period, in which borrowers who miss payments won't be considered delinquent by their loan servicer. Interest will still accrue during the period, which will run from Oct. 1, 2023, to Sept. 30, 2024, but their accounts won't be placed in default, reported to credit bureaus or referred to debt-collection agencies.

"Borrowers who can pay should do so, but this on-ramp period gives borrowers who cannot make payments right away the necessary time to adjust," the Department of Education said in a statement.

While many respondents plan to decrease nonessential spending, pick up extra work or even dip into their savings to pay down their student loans, a quarter intend to delay financial milestones like having kids or buying a home and nearly the same percentage (23%) plan to decrease retirement savings contributions.

Thirty-four percent said they intend to apply for an income-driven repayment plan, which can significantly lower monthly payments.