Student Loan Holiday May End Soon: Financial Ramifications and How To Begin Repaying Your Debt

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For borrowers, the official federal student loan payment moratorium comes to an end on Sept. 1 after almost two-and-a-half years of a loan payment hiatus.

An extension, most likely to the end of this year, is assumed to be announced by President Joe Biden before month’s end. But whether that happens or not, borrowers will eventually have no choice but to resume payments, something a great many are financially unprepared to do.  

A new study — commissioned by Keybank’s digital banking platform Laurel Road and conducted by HarrisX — gauged the financial implications on borrowers if the loan holiday is not extended. The study found that having to repay student loans will have a significant impact on how affected borrowers spend and save their money.  

According to the study, 17% of American adults currently have an outstanding student loan, and 68% of adults who carry a student loan have a federally allocated loan.

Over the course of the payment pause, more than two-fifths (43%) of respondents stopped paying off their loans completely and have not restarted payments. This is almost double the figure representing borrowers who have continued with their loan payments without pause (24%), and those which mostly continued with payments — but took a pause (23%). Ten percent of those surveyed stopped payments but have since resumed their loan fees.   

Per the study, if the student loan payment stoppage doesn’t continue past August, 45% of those surveyed will need to cut back on other expenses and 31% will need to find public service loan forgiveness. Additionally, 23% say they will need to refinance their loans and 22% will not be able to afford groceries or rent.

Save for Your Future

Paying Back Your Student Loans: Expert Advice

Someone who knows more than a thing or two about the best way to tackle repaying a student loan is Kaitlin Walsh-Epstein, chief marketing officer at Laurel Road, who said, “Managing your student loans is not a one-size-fits-all approach.”

Corresponding with GOBankingRates, Walsh-Epstein suggested a thorough look at your finances as the first step in the repayment process — along with an examination of your debt and repayment timeline.

“For those starting to make payments for the first time, you should re-evaluate your budget to determine where you may need to cut back on other spending in order to make monthly loan payments,” stated Walsh-Epstein. “The 50/30/20 (needs/wants/savings) budget rule is one of the most easy-to-follow budgeting strategies.”

Additionally, most people have given little thought to how interest rates have behaved over the course of the student loan payment pause. Checking rates first will enable borrowers to determine what repayment route will best suit their means and aims.

“Depending on the person, this path may mean paying more than the minimum each month to prevent additional interest charges over the life of their loan, making payments 2x per month rather than once to reduce the overall amount of interest they pay, or refinancing to reduce their interest rate,” said Walsh-Epstein.

“If borrowers are looking to pay less each month, they can also consider lengthening their loan term through refinancing to potentially make smaller monthly payments for a longer period of time,” she added.

Save for Your Future

Knowing your loan’s total cost and interest rate, potential refinancing options and your personal financial situation are vital as one awaits an official federal announcement on the matter.

If you are unaware and concerned, ask your lender about what plan best suits you or, as Walsh-Epstein suggested: “Consult with a student loan expert to better understand what their options are regarding loan forgiveness, refinancing, or potentially both.”

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