Holidays on Hold: Student Loan Repayment Has Borrowers Trimming Budgets | Student Loans and Advice

Federal student loan payments resumed in October just ahead of the holiday season, so it may not come as a surprise that most Americans with college loan debt plan to spend less money this year on family gatherings, festive trimmings and gift-giving, according to a November survey from U.S News. And while it may be a blue Christmas for student loan borrowers, the financial strain of loan repayment doesn’t end once the holidays are over.

Between Nov. 17 and 27, U.S. News ran a nationwide survey of 1,202 former college students with federal student loan debt, conducted through PureSpectrum. We asked respondents a series of questions about how their finances have changed since the three-year student loan forbearance ended, including what it means for their holiday budget, whether they’ve been making payments and how student loan repayment is impacting their financial well-being. Here’s what we found:

The holidays can already be a time of financial stress for merrymakers who renounce their otherwise-balanced budgets in the spirit of giving. This holiday season, money is even tighter for student loan borrowers who were recently saddled with an extra monthly bill for the first time in three years. Three in four borrowers (76%) say that the resumption of student loan payments will cut into their holiday spending budget. Among them:

Compared with previous holiday seasons, 62% of student loan borrowers believe they’ll spend less money this year, while just 13% think they’ll spend more. About a quarter (26%) say they’ll spend about the same amount. In general, the vast majority of federal student loan borrowers (80%) have had to reduce their overall spending due to the resumption of student loan payments.

That being said, it’s no wonder why 72% of student loan borrowers say the resumption of payments has dampened their holiday spirit.

About two-thirds of federal student loan borrowers have been making payments since forbearance ended, but over a third (37%) haven’t. And there’s a significant correlation between student loan repayment and degree obtained.

Borrowers with a master’s degree or higher are the most likely to make payments on their student loans, at 76%. Over two-thirds of those with an associate or bachelor’s degree (68%) have been paying their loans. But just 31% of borrowers who didn’t graduate or obtain a degree are making student loan payments.

Among student loan borrowers who haven’t been making payments, 55% applied for forbearance or deferment, while 45% say, “I just haven’t paid my loans.”

The Education Department has paused adverse collections activity during a 12-month on-ramp to repayment program, but when that expires in October 2024, student loan delinquency will have consequences – especially for those with extended periods of nonpayment. Borrowers who don’t pay their student loans for nine months go into default, which can result in serious credit damage, loan acceleration and wage garnishment.

Student loan forbearance gave borrowers the opportunity to catch up on other financial goals during the COVID-19 pandemic, according to an August U.S. News survey conducted before payments resumed. But now that relief has ended, borrowers are saving less money, missing payments on other bills and becoming increasingly reliant on credit cards.

Three-quarters of student loan borrowers (75%) have had to pull back on savings due to the resumption of student loan payments. Over half (52%) have cut their emergency savings, and 26% are putting less toward their homebuying fund. A quarter (25%) have reduced their retirement contributions.

Of concern, 64% of borrowers have missed payments or become delinquent on other bills because forbearance ended, including credit card payments (37%), housing payments (27%) and/or auto loan payments (23%). A small number of borrowers cite other bills they’ve missed, like personal loan payments and utility bills.

Perhaps unsurprisingly, student loan borrowers are increasingly turning to plastic as other bills pile up. Three-quarters of borrowers (75%) say the resumption of student loan payments has negatively impacted their credit card spending habits:

On the other hand, a quarter (25%) say their credit card spending habits haven’t changed or they don’t use a credit card.

Let’s zoom out and take a look at these alarming survey results in the lens of behavioral economics. During forbearance, did student loan borrowers adopt a financial lifestyle they couldn’t sustain? Or were borrowers always this strapped because of their debt, and it’s only become apparent now that payments have resumed?

Whether student loan borrowers have inherently changed, or whether the economy around them has driven them to change, our findings make one thing clear: Many student loan borrowers are worse off financially since student loan payments restarted. Here’s what you can do if you’re struggling to manage your finances amid student loan repayment: