It’s no secret that millions of Americans, young and old, are burdened with student debt, but the COVID-19 pandemic has brought unexpected relief to many low-income borrowers.
The pause in federal student loan repayments meant that overwhelmed borrowers like Fresno’s David Lozano finally had a choice about how best to manage their budgets.
In Lozano’s case, the break allowed him to buy a car, pay off his credit card debt, and take vacations and personal time off without worrying about his student loan repayments or accrued interest.
And, while the Biden administration extended the grace period after it was scheduled to expire on May 1, payments will resume on September 1, the White House announced Tuesday.
Two-Year Graphic Design Degree Brings Thousands of Dollars in Debt
Lozano graduated from high school in rural Orange Cove, and like many high school graduates, he was eager to earn a degree that would help land him that dream job.
“I ended up going to a private college to study business at first and then it became something else,” Lozano said. “At the end of the day, I accumulated this huge debt that I didn’t care about when I was in school.”
Unlike many of his peers who chose to attend a four-year public school like Fresno State, Lozano attended a private graphic design college that promised students the ability to complete a degree in two years instead of four.
However, Lozano is now being forced to pay double what many low-income Fresno State students pay in student loans. After 10 years of making more than the minimum monthly payments and the two-year repayment break, Lozano still owes about $30,000.
“It’s been over a decade now and I’ve already paid maybe a little over half of it and it’s still in the double digits,” said Lozano, who works as a marketer. “It’s the interest that makes me feel like it’s going to keep taking longer and longer.”
An opportunity to boost Financial Growth
According to a recent report from the Bureau of Consumer Financial Protection, higher savings rates and government stimulus measures have helped millions of people pay off debt from credit cards, student loans and other borrowings.
“When they put in a temporary freeze, they said you could pay it back bit by bit and at first I kind of was,” Lozano said. “But then I thought, like, you know, let me focus on the other things like I was able to improve my credit and I was able to get a real car from the dealership.”
Lozano began dreaming of what he could buy with his extra income, including owning his own home – a thought that had never crossed his mind before the pandemic.
According to an Urban Institute analysis of credit bureau data, there was an increase in the number of first-time homebuyers among student borrowers during the payment moratorium, particularly for those aged 26. and more.
In fact, Lozano and his partner said they went house hunting, but an improved credit score wasn’t enough to compete in Fresno’s competitive housing market.
“I didn’t get approved for a lot because they saw how much money I owed,” Lozano said. “I’ve spoken to a lot of real estate agents and you know it was just unfortunate because it’s like what we have to offer to pay for a house isn’t enough compared to someone else. which is probably already well established.”
A California Policy Lab report shows that the average credit score of affected borrowers fell from 640 to 668 in the 24 months from January 2020 to December 2021.
What will happen when the student loan break ends?
The California Policy Lab estimates that more than 7.8 million borrowers, including about 500,000 Californians, who owe $277 billion in student debt, could struggle to repay their student loans when the break ends.
For Lozano, this grace period has helped him achieve goals he never thought possible. But with student loan debt coming back at some point, he says he’ll eventually have to dip into his savings and maybe add a part-time seasonal job to his busy schedule.
“So now that the credit cards are paid off and I can put money aside for emergencies, it’s almost like I’m going to start tapping into that fund,” Lozano said. “Once that school debt comes back, it’s almost like… worst case scenario, I get a seasonal job.”
Ninety Democratic lawmakers have pleaded in a letter to Biden to extend the pause on federally held student loan payments until at least the end of the year and to provide meaningful student debt forgiveness. .
According to the Department of Education, more than 43 million Americans owe a combined $1.6 trillion in student debt held by the federal government. At least 7 million of those borrowers defaulted on their loans because they were already 270 days past due before the break began.