One in five borrowers, burdened by other increased debt, could face student loan payments of $500 or more, a TransUnion study found.
08/17/2023 8:30 A.M.
3.5 minute read
According to a new study by TransUnion, approximately 27 million student loan borrowers are gearing up to restart their payments in October, with a surprising one in five expected to grapple with a monthly financial hit of $500 or more in education payments alone.
Interest on the payments will resume Sept. 1.
In the wake of the COVID-19 pandemic, many borrowers have not only been managing the weight of their student loans but have also accumulated additional debt, growing their overall financial burden. The average student loan borrower already carries approximately $35,000 in debt. According to the study, this group has also taken on new credit products over the past three years, further escalating their debt levels and monthly financial commitments.
The study explores the implications of this impending shift, revealing that 40.6 million consumers are shouldering a collective student loan debt of $1.6 trillion. Among them, about 26.8 million borrowers with federal student loans are preparing to grapple with resumed payments. For many in this group, this will be the first time they’ve encountered such obligations, either due to the pandemic-related moratorium or their previous non-participation in repayment plans.
The U.S. Department of Education has offered some relief by instituting a 12-month plan for borrowers whose payments will resume in the fall. Those who miss payments from Oct. 1, 2023, to Sept. 30, 2024, will not be “considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies,” during that time, according to a Department of Education fact sheet.
“The majority of consumers with a student loan have not been required to make payments for the better part of three years,” said Liz Pagel, senior vice president and consumer lending business leader at TransUnion. “Payment amounts will vary, but many of these consumers have taken on additional debt since the last time they had to pay their student loans. It’s important for both lenders and consumers to be prepared for this new payment shock.”
These additional financial commitments have compounded the challenge of integrating student loan payments into monthly budgets. The study also highlights that interest will begin accruing one month before payments resume, underscoring the urgency for borrowers to resume payments as soon as possible even though they will have 12 months before any delinquencies will be reported.
The TransUnion study shows that in addition to the borrowers who could see student loan payments of over $500, nearly half of the borrowers facing a “payment shock” can anticipate monthly payments exceeding $200. Interestingly, these figures remain relatively consistent across different credit risk tiers. However, there’s a generational difference, with older generations—the Silent Generation, Baby Boomers, and Gen Xers—more likely to shoulder higher payments compared to their Gen Z counterparts.
What’s Next?
As the start date for resumed payments approaches, borrowers are urged to take proactive steps to mitigate the impending financial strain. Assessing monthly budgets and making necessary adjustments ahead of time can potentially alleviate the impact of these payments on households, according to TransUnion. In this transitional period, both lenders and borrowers need to be well prepared for the financial readjustment ahead.
ACA’s Take
Student loan borrowers should connect with their student loan servicer or education provider for any questions on the new payment schedule. Servicers also have plans to reach out to borrowers with information about their options as repayment resumes. ACA members in student loan servicing have successfully helped consumers develop income-driven repayment programs that work and throughout the forbearance period have encouraged consumers to reach out with questions on their loan payments.
To find your student loan servicer, visit the Federal Student Aid website.
Student loan servicers also explain the options for consumers who truly cannot afford to pay. In many cases, discussions with servicers can also rectify past financial decisions that were not a consumer’s best option.
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New Student Loan Relief Plans Surface from Congress and Department of Education
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