PHILADELPHIA–Student loan borrowers reaching out to their lenders with questions when the pandemic pauses could overwhelm the system, according to a survey conducted by Pew Charitable Trusts.
According to Pew, the survey “suggests policymakers should take immediate action before millions face unaffordable payments.”
Pew noted that as the COVID-19 pandemic unfolded this year, Congress and the Trump administration acted to automatically pause payments and interest charges for most loans and suspending collection efforts for those in default until Dec. 31.
“But a recent survey conducted for The Pew Charitable Trusts highlights potential difficulties ahead for borrowers when payments resume in January,” Pew stated. “Those who benefited from the pauses will have to simultaneously navigate financial challenges, continued uncertainty, and a confusing repayment system, which could drive them to reach out to student loan servicers for help in unprecedented numbers. These findings point to the importance of providing targeted assistance to those who are struggling—before the pauses end.”
Pew said its survey, conducted in August and early September, found borrowers are aware of the pandemic assistance, but many are confused about whether and how the provisions apply to them.
The Findings
Among the findings:
- 81% said they knew about the pauses, with many borrowers saying they had not paid had a bill due since March
- Still, only 67% who had heard about the pauses said they believed the protections applied to them
- Among those who said the pauses applied to them, 61% knew when they would need to resume payments. “In addition, research examining financial insecurity more generally has found that limited access to financial resources may constrain families’ abilities to navigate complex structures such as the student loan repayment system,” Pew said
- Almost 6 in 10 borrowers (58%) who were aware of and reported paused payments said it would be somewhat or very difficult to afford their payments if they had to begin making them in the next month. “These borrowers may need assistance identifying and enrolling in affordable options, such as income-driven repayment (IDR) plans,” Pew said. “These plans tie monthly payments to family size and income and can result in borrowers without income owing nothing for a period, which could help many at a time of high unemployment”
- 75% of borrowers had heard about IDR plans, which is good news. “But research shows that enrolling—and staying—in these plans can be challenging,” Pew said. “The income and other data needed must be recertified annually, and borrowers frequently use tax information to do so. Because millions have recently lost jobs and are experiencing income volatility, the information in their prior year’s tax returns may not match their current incomes”
- 22% of those who were aware of the pauses said they had reached out for more information. “Much of this volume was probably concentrated in the spring when the pauses were announced, as it similarly was with home mortgage loans. Such outreach is likely to be even greater in January, when the pauses automatically end for millions
Overwhelming Calls
“If 22% of federal borrowers were to reach out in January, servicers could be fielding inquiries from more than nine-million people,” Pew stated. “At the same time, these entities have faced challenges operating support centers during the pandemic and will need to ensure that they are appropriately staffed.”