One year without student loan payments

As a result, about 20 million borrowers currently have their loans in tolerance, according to Mark Kantrowitz, author of “How to Appeal for More College Financial Aid”.

For Kim Stolow, a 41-year-old clinical therapist based in New Jersey, the break came as she struggled to cope with reduced workload and more commitments to her children.

“Mentally, it relieved the pressure,” she said. “Just one less thing to think about.”

As of December 2019, the average student debt taker was 34 years old, according to the Federal Reserve Bank of New York. Last year, the average disbursement of federal student loan debt to undergraduate and graduate students was $ 11,077, according to the Department of Education.

Total outstanding student debt stood at $ 1.56 trillion in the fourth quarter of 2020, an increase of $ 9 billion from the previous quarter.

For some young Americans, the rising costs of higher education have increased their debts and damaged their financial lives. Student loan repayments and interest freezes have given them the ability to survive, pay off debts and take care of other responsibilities. Some used the money to increase their savings.

There is evidence of where that extra money went and where it did not go. An increase in credit scores suggests that more young people are paying other debts.

Paying the bills

Krystal McCain, 29, found that her two jobs – working as a university activities coordinator and a parallel waitress – were affected by the pandemic. In 2020, she realized that she was paying more for the student loan than for the rental of the apartment.

With her university job on leave and her reduced waitress hours, McCain said that had it not been for the suspension of loan repayment, she would not have been able to take care of basic responsibilities.

“The start of the blockade was really difficult,” she said. “If all of this hadn’t been stopped, I don’t know what I would have done. I would have been evicted. I don’t know how I was able to pay the bills. ”

McCain said the pause in loans allowed her to pay more than $ 1,000 in credit card debt. But in August 2020 she celebrated what she considered an even more important milestone: the opening of her first savings account.

“I feel extremely ashamed and incredibly proud,” she said. “I work in higher education and I have a master’s degree, but I was still surviving.”

Researchers at the New York Fed said there was a possible link between more people paying high-interest debts and a pause on student loans. Credit reporting firm Experian said the average credit card debt held by the millennium generation has dropped 11%.

saving up

When Jarrod Grim, 35, made his last student loan payment on March 17, 2020, he immediately made a plan: while the break was in effect, he would shift the student loan payment amount, $ 525, to a savings account separate.

Now, a year later, he has kept the plan.

“In the past 11 months, I added about $ 5,800 to my savings account,” he said. “At the end of September, I estimate that I will only have $ 10,000 in savings.”

Initially, Mr. Grim made the move to increase his emergency savings, preparing for the event of losing his job.

Mr. Grim has $ 80,000 in student loan debt, all federal loans and all accumulated in his graduate degree in urban planning at Rutgers University. He has consolidated 11 different student loans and expects to pay one with the highest interest rate.

Joy Liu, a financial trainer at Financial Gym, a financial services company, is encouraging clients to adopt Mr. Grim’s strategy: continue to reserve money for student loans in their budget, even if they don’t go for loans at this time Time.

“What we really try to do is never want them to lose the practice of paying them,” she said. The money, she said, can be used to save money, bills or investments – or pay off student loans after the break.

An uncertain future

Not all borrowers have benefited from the drop in loan payments. While 89% of student loan takers were helped by the payment freeze, the rest of those left out are borrowers with private loans.

Chandler Perry, 27, a graduate student at the Massachusetts Institute of Technology, said that uncertainty has been a big factor in her decision making over the past year, especially as she has watched colleagues benefit from the break. Even with a large scholarship, Ms. Perry has accumulated more than $ 120,000 in private student loans, which continue to earn interest.

Ms. Perry, who identifies herself as black, described the student debt crisis as “another obstacle for minorities”.

While 20% of residents of mostly black neighborhoods have outstanding student loans, which is higher than for neighborhoods with a majority of white or Hispanic residents, the New York Fed found that the increased cash flow from the pause in loan payments was lower among borrowers residing in black communities.

She is now considering taking federal loans for the next school year, in part to help pay off her existing loans.

“It’s counterintuitive,” said Ms. Perry. “I’m paying off my loans with the loan money.” She expects more transparency from Congress in terms of the duration of the freeze and what to expect in terms of forgiveness.

Wait and see

Ms. Liu, the financial coach, had to convince some people that it is okay to not pay the loans at this point. For those who succeed, the break offers a rare opportunity to be strategic and achieve other financial goals.

“There is something about the American student loan system that is really exciting,” she said. “So people have a lot of resentment about student loans and want to get them off their back. Perhaps this is helping some to overcome the mental block that they could not have children or marry until their student loans have been repaid. “

Often, emergencies mean that people have no choice but to deal with urgent expenses before they prepare for bigger financial milestones, said Kantrowitz, the author of the financial aid book.

“People shouldn’t feel guilty,” he said. “If you need that money to pay for groceries or deal with medical expenses or pay other debts, do it. Often you have no choice but to do it. ”

—Allison Prang contributed to this article.

Write to Amber Burton at [email protected] and Julia Carpenter at [email protected]