The Impact Of Student Loan Forbearance And The End Of Student Loan Forgiveness

On June 30, 2023, The Supreme Court blocked President Joe Biden’s student loan forgiveness plan, ending millions of Americans’ hope for financial relief.

As current students return to campus in September, alumni with student loan debt will prepare for the return of monthly payments. Interest on their unpaid balances will start accruing come September and their first payment will be due in October.

How will the future look for student loan borrowers as payments resume, and how did the last 3 years of forbearance change their lives? To help answer those questions, Rocket Loans^SM surveyed federal student loan borrowers across the country who hold some kind of post-secondary degree. The results gave insight into the average borrower’s current loan situation, the impact of the payment pause and the consequences they anticipate from the Supreme Court decision.

Starting October 1, 2023, more than 40 million Americans will have to start or resume payments. For almost a quarter of survey respondents, that will be an entirely new experience. Of the borrowers surveyed, 24.2% had yet to make a student loan payment post-graduation when the pause went into effect. The majority of those graduated during the payment pause, with 17.9% of all survey participants having graduated between 2020 – 2023.

Of the remaining 75.8%, the median number of years they had been paying their loans before the pause was 4 years. However, of that percentage, 23.4% had been making payments for over 10 years.  The average graduation year was 2010. For those who have previously made payments, the average monthly payment was around $400.

Among all borrowers, less than half (48.5%) knew their total student loan balance. Within this group, the average total balance owed is about $24,400. When it comes to interest rates, only about a quarter (26.4%) know what theirs is. The average rate among those who know it is around 5%.

In response to the economic fallout of the COVID-19 pandemic, former President Donald Trump signed into law the Coronavirus Aid, Relief and Economic Security Act (CARES Act) to offer help to impacted individuals, families and businesses across the country. Part of this economic stimulus bill was a temporary relief for student loan borrowers. Along with suspending federal student loan payments, the CARES Act also prohibited the accrual of interest during this forbearance. Since it was enacted in March 2020, the student loan moratorium was extended more than half a dozen times. This gave borrowers more than 3 years to save money, pay down debt, make big purchases or focus on other financial goals.

According to 62.3% of survey respondents, the student loan payment pause allowed them to reach other financial and life goals. Of those who felt that way, 37.8% were “very” or “extremely” confident they would not have been able to experience or complete a major milestone without the forbearance period, while 24.5% claimed they were “somewhat” confident.

The top five goals borrowers were able to achieve during the payment pause were:

• 37.2% paid down outstanding debt.
• 25% purchased a car.
• 20.2% started saving or saved more for retirement.
• 13.4% purchased a home.
• 9.5% had a child or children.

Of those who were able to pay down outstanding debt, the average amount they were able to pay down was 43.2% of debt. Some respondents indicated that they were able to completely pay off their student loans during this time.

Over three-fourths of student loan borrowers (79.9%) believe that the loan pause coming to an end will have a moderate or severe impact on their current financial budget.

More than one-third of respondents didn’t know how they’ll afford their student loan payments come September.

Of those who had a plan, 23.6% intended to cut back on expenses. Only 3.2% planned to take out a personal loan, while only 1.7% planned to use their home’s equity – whether in the form of a home sale, refinance, home equity loan or other way of using equity.

Of those surveyed, 38.3% would’ve qualified for $10,000 in loan forgiveness, while 49.3% would’ve qualified for $20,000, had it passed with the Supreme Court. With the majority having qualified for some kind of forgiveness, the hope for some financial reprieve is still high. Especially with what forgiveness could do for their financial lives. Respondents indicated that student loan forgiveness could help them: 

• “Worry less about how to pay my bills.”
• “Save more money, pay off my house sooner [and have] financial security.”
• “Pay off approximately half of my student debt.”
• “Pay down my credit card.”

While opinions differ about student debt cancellation, many Americans, including some in congress, made their dissatisfaction with the Supreme Court decision known. In response to the decision, the Biden administration vowed this wouldn’t be the end for student loan relief. This summer, the White House introduced the Saving on a Valuable Education (SAVE) plan. This income-driven repayment plan will base a borrower’s monthly payment on one’s income and family size. It will replace the current Revised Pay As You Earn (REPAYE) plan, expanding on the benefits it offered.

With this more-generous plan, some borrowers – like single borrowers making less than $32,805 per year – may not be required to make any payment at all. For those making payments, interest will no longer accrue on their loans, if they continue to make those payments on time and avoid delinquency. The U.S. Department of Education is expected to notify borrowers once the SAVE plan is available and borrowers must apply for the program to reap its benefits.

For those employed by the government or a non-profit organization, the Public Service Loan Forgiveness (PSLF) program is still available. However, there are eligibility requirements. This debt relief plan forgives remaining student loan balances once the qualified borrower completes 120 qualifying monthly payments while working full-time for an eligible government or not-for-profit employer.

For more details on loan forgiveness programs, federal student aid and the various student loan repayment plans, student loan borrowers are encouraged to review all the details provided on StudentAid.gov.

To understand how federal student loan payments resuming and the cancellation of student debt relief is impacting borrowers financially, Rocket Loans surveyed 1,000 student loan borrowers. Participants must currently still owe any kind of federal student loans. Private student loans were not taken into consideration. Participants who have not completed a 2-year, 4-year, masters or professional degree program were screened out. This survey was conducted July 3, 2023.