One in five borrowers have made zero payments toward their student loans, as many hold out for loan forgiveness

• One-in-five (20%) student loan borrowers have not made any payments toward their student loans, which is the case for 27% of those with less than $50K in household income (HHI).
• 40% of student loan borrowers say they make too much money to qualify for the SAVE plan, but not enough to afford their student loan payments.
• 63% of borrowers who have not been making consistent on-time payments toward their federal student loans are worried that their credit score will take a hit once their student loan payment history is reported to the credit bureaus this October.

Student loan debt continues to be a sore spot for many Americans struggling to make their monthly payments, while many borrowers hold their breath in hopes that loan forgiveness is in their future.

According to a new study conducted by Qualtrics on behalf of Intuit Credit Karma, one-in-five (20%) student loan borrowers admit to not having made any payments toward their student loans, which is the case for 27% of borrowers with less than $50K in household income (HHI). The decision to not make payments likely stems from affordability issues as nearly half (49%) of student loan borrowers feel financially unstable right now, and more than half (55%) say they are unable to afford their student loan payments. Low-income borrowers are being hit especially hard - 65% of those with less than $50K in HHI say they cannot afford their student loan payments.

Many borrowers grappling with affordability challenges blame the cost of living with 69% saying that the high cost of living has made it difficult for them to afford their payments. Borrowers are having to make tradeoffs when it comes to paying down debt, and it's negatively impacting their ability to make financial progress. 38% of student loan borrowers say they've fallen behind on other bills (e.g. auto loan, mortgage, credit card) in order to make payments toward their student loans, while another 39% are forgoing making payments toward their student loans to pay down other high-interest debt.

Perhaps even more concerning is the 38% of borrowers who say they've depleted their savings to pay their student loans, increasing to 44% of Gen Z and 41% of millennial borrowers. As a likely result, about one-third (34%) of student loan borrowers say they have $0 in savings, which is the case for 55% of borrowers with less than $50K in HHI.

Being able to make payments toward their student loans comes at a cost for many borrowers who have had to make sacrifices and lifestyle adjustments to do so. In order to afford their student loan payments, borrowers have decreased their non-essential spending (37%), taken on additional work to increase their income (31%), sacrificed necessities like groceries, rent and bills (26%), applied for an income-driven repayment plan (IDR) or other government programs to lower their monthly payments (24%), dipped into their emergency savings (23%) and put off key financial milestones like buying a home or having children (21%).

Will the SAVE plan be saved?

Of the 82% of borrowers with federal student loans, about half (48%) are aware of the Biden administration's Saving on a Valuable Education (SAVE) plan, a government provided assistance plan for federal borrowers who qualify. Of the nearly half of federal borrowers who have the SAVE plan on their radar, 63% have applied for the plan, and a whopping 82% of those who applied, qualified.

However, the fate of the SAVE plan remains in limbo and it hasn't been the easiest situation to follow. As shown by the 68% of student loan borrowers who say the court updates regarding the SAVE plan have been confusing to follow. Uncertainty aside, roughly three-quarters (76%) of student loan borrowers are hopeful the SAVE plan will be implemented. However, in this case, hopefulness could come at a cost. More than one-third (36%) of student loan borrowers say they are not making consistent on-time payments toward their loans in hopes that their debt will be forgiven.

For some borrowers, the SAVE plan is irrelevant, and perhaps a bit of a tease. 40% of student loan borrowers say they make too much money to qualify for the SAVE plan but not enough to afford their student loan payments.

Credit score busts could be in the cards for federal borrowers

As we near the one-year anniversary of the end of the pandemic-enacted forbearance put in place for federal student loan borrowers, those who haven't been making payments should be on high alert. That's because the Department of Education enacted a 12-month "on-ramp" to repayment period that expires on September 30th, 2024.This protects federal student loan borrowers from having a delinquency reported to the credit reporting agencies and prevents the worst consequences of missed, late, or partial payments.

More than one-third (37%) of federal student loan borrowers say they are aware of this program, and 63% of those who have not been making consistent on-time payments toward their federal student loans are worried that their credit score will take a hit once their student loan payment history is reported to the credit bureaus this October. That's because interest still accrues during the on-ramp period, so balances will have swelled for those not making payments. In fact, 69% of borrowers who have not been making consistent on-time payments toward their student loans say they will not be able to afford to pay down the interest they've accrued from missing their student loan payments.

You could argue that some borrowers took irresponsible advantage of the "on-ramp" protection. Roughly one-in-seven (15%) of those who have not been making consistent on-time payments toward their federal student loans purposely weren't doing so because they knew their credit score would not be impacted. This jumps to 38% of Gen Z federal student loan borrowers.

Student loan debt brings affordability challenges to Americans of every age, and 60% of student loan borrowers say their loans are preventing them from reaching their savings goals, or from paying off debt. That could be why borrowers are questioning the value of a college degree, with about one-third (34%) of borrowers admitting that they don't think the return on investment for higher education in America is worth the expense.

"Student loan debt continues to stand in the way of many Americans' ability to reach their financial goals, whether they're fresh out of college or approaching retirement," said Courtney Alev, consumer financial advocate at Intuit Credit karma. "And, with Biden's SAVE plan in limbo, many borrowers face uncertainty as to whether or not they will benefit from lower monthly payments and a clear path to loan forgiveness. We know from our study that one-in-five borrowers have made zero payments toward their student loans, which means their balances have been growing, especially now that interest has accrued for nearly a year now. These borrowers could find themselves in an unruly amount of debt. While it's great to have hope in potential loan forgiveness, borrowers should not put all their eggs in that basket. Those struggling to make their student loan payments should reach out to their loan servicer to understand their options, whether that be forbearance, deferment or a more affordable repayment plan."

Methodology

This survey was conducted online within the United States by Qualtrics on behalf of Intuit Credit Karma between August 3, 2024 and August 19, 2024 among 1,995 adults ages 18 and older with outstanding student loan debt.

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