As the COVID-19 pandemic unfolded this year, Congress and the Trump administration acted to help alleviate the serious challenges facing federal student loan borrowers by automatically suspending 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 the potential difficulties ahead for borrowers when payments resume in January. Those who benefited from the breaks will simultaneously face financial challenges, continued uncertainty and a confusing repayment system, which could lead them to seek help from student loan officers in unprecedented numbers. These results underline the importance of providing targeted assistance to those in difficulty, before the end of the breaks.
The survey, conducted in August and early September, shows borrowers are aware of pandemic help, but many are unsure if and how the provisions apply to them.
Eighty-one percent said they were aware of the breaks. A number of factors likely contributed to this high level of awareness, including the media blanket, the awareness of the US Department of Education and Student Loan Services, and the fact that many borrowers have not had bills to pay since March.
Yet only 67% of people who had heard of the breaks said they thought the protections applied to them. According to a government accountability office in June report, more than 40 million borrowers, or more than 90% of 42 million with a federal loan — have at least one loan eligible for suspended payments, accrued interest, or collection efforts. But awareness of pandemic assistance may not have translated into an understanding of their own eligibility for several reasons. Borrowers may have loans that are not eligible for assistance, may not to know the status of their loans, may have been confused by delays suspended from certain collection efforts, or may have loans already on hold (due to postponement, abstention, or school enrollment, for example).
Importantly, the service agents automatically applied the assistance to the accounts of eligible borrowers, regardless of their knowledge of the program. While some may have chosen to continue making payments, others may have unknowingly done so due to this lack of understanding.
Of those who said breaks applied to them, 61% knew when they would need to resume payments. The breaks took place in March and extended in August (when this survey was in the field), which may have contributed to the confusion among some borrowers. In addition, research on financial insecurity more generally has found that limited access to financial resources can constrain the ability of families to navigate complex structures such as the student loan repayment system.
While communications and media coverage will intensify as January 1 approaches, this confusion creates challenges for the department and loan officers.
Many borrowers may find it difficult to pay their payments after the breaks are over and will be faced with a confusing system when weighing their options.
Almost 6 in 10 borrowers (58%) who were in the know and reported suspended payments said it would be quite or very difficult to pay their payments if they were to start making them within the next month. These borrowers may need help identifying and enrolling in affordable options, such as income-tested repayment plans (IDRs). These schemes tie monthly payments to family size and income and can ensure that borrowers with no income owe nothing for a period of time, which could help many people at some point in time. high unemployment.
Seventy-five percent of borrowers had heard of IDR plans, which is good news. But research shows that signing up and staying with these plans can be difficult. Income and other necessary data must be recertified annually, and borrowers frequently use tax information to do so. Since millions of people have recently lost their jobs and are experiencing income volatility, the information in their previous year’s tax returns may not match their current income. And the to treat updating this data to reduce monthly payments can be complex and time consuming for borrowers and service providers.
Simultaneously navigating uncertainty, financial challenges, and a confusing repayment system could lead borrowers to contact loan services in unprecedented numbers when payments resume, overwhelming the system.
At the time of the survey, 22% of those who were aware of the breaks said they had requested more information. Much of this volume was probably concentrated in the spring when the breaks were announced, as it in the same way was with home mortgages. Such a reach is likely to be even greater in January, when the breaks automatically end for millions of people.
If 22% of federal borrowers were to reach out in January, service agents could meet the demands of more than 9 million people. At the same time, these entities have face challenge the operation of support centers during the pandemic and will need to ensure they have the appropriate staff.
The survey results underscore the importance of identifying borrowers who may be in difficulty and providing targeted assistance before the end of the suspension period.
To do this, Congress and the Department of Education should:
- Continue and expand targeted awareness and measure results. Pew research highlights metrics that can help identify risky borrowers before they get into trouble. The department and services could use existing data to target these borrowers, examining those who were past due, struggling or had suspended payments repeatedly and for long periods before the pandemic. They should measure the results of this awareness, and the ministry should demand the use of best practices in future efforts.
- Give a grace period to those who are having difficulty after suspended payments end. Automatically allowing additional short-term periods of suspended payments for those who default on payments immediately after protections expire would give services more time to reach them and borrowers more time to manage automatic debit agreements.
- Ensuring easy access to affordable payments. The department already has expanded the IDR repayment deadline for millions of borrowers. To provide repayment flexibility in times of great uncertainty, service providers should be allowed to enroll borrowers in IDR plans without requiring extensive paperwork, for example orally, through a website, or through electronic communication.
This study was conducted for Pew by telephone (landline and cellular) by SSRS on its Omnibus survey platform. The SSRS Omnibus is a national, weekly, dual frame telephone survey in Spanish and English. Interviews were conducted from August 4 to 23 and September 1 to 6, 2020, with a sample of 1,831 respondents. The margin of error for all respondents was +/- 2.62 percentage points at the 95% confidence level.
Sarah Sattelmeyer is the Project Director and Lexi West is a Senior Associate of The Pew Charitable Trusts Successful Student Borrower Project.