A new study from NerdWallet says most federal student loan borrowers utilizing the payment pause are using the money for everyday necessities or to pay down debt.
On March 13, 2020, many federal student loans were put on an automatic payment pause in hopes to provide relief during the Coronavirus pandemic. The payment pause was initially set to end in September but has currently been extended until December 31, 2020. During this pause, no payment is due on most federal loans and no interest is accruing.
A third of Americans with federal student loan debt (33%) are using the money that would typically go towards their loan payments to pay for rent, food, and other necessities. For federal borrowers, 19% surveyed report still making federal student loan payments as they normally would.
Here is a breakdown of what borrowers are using their federal loan payments for instead:
- Using the money for necessities (33%)
- Paying down debt (29%)
- Putting money into savings (25%)
- Investing (17%)
- Using the money for non-necessities (15%)
- Something else (10%)
“The ideal way to use this time will depend on your situation. If your finances have remained unchanged during the pandemic, you could put those would-be monthly payments toward lowering your loan principal, which will help you save on interest and get rid of your debt faster,” says Anna Helhoski in the article, NerdWallet’s student loans expert.
“But this isn’t the case if you’re one of the millions of unemployed Americans. This time is crucial to prepare for that first loan bill to arrive come January,” Helhoski says. “In these final days, touch base with your servicer and gather all paperwork needed to enroll in an income-driven repayment plan or apply for an unemployment deferment.”
According to NerdWallet’s survey, Americans are taking other actions towards their student loan debt during COVID-19. This includes modifying their loan payments with an income-driven repayment plan (25%) (available for federal student loans), applying for an unemployment deferment (22%) (available for federal student loans), making additional payments (22%), and refinancing a private student loan (11%).
The survey also finds that 45% of respondents are confident that they will be able to make their monthly student loan payment when the automatic forbearance ends.