Student Loan Debt Spans Generations, and Many Aren’t Ready to Resume Payment

Student loan debt is often seen as a crisis for millennials and Generation Z, but the truth is the financial impact of the more than $1.7 trillion in education debt [1] can be felt across generations. Parent PLUS loan debt — currently exceeding $100 billion [2] — is one such example.

Parent PLUS loans are federal loans available to parents of a qualified undergraduate student, with higher interest rates than a typical direct federal student loan. Unlike most federal loans, these loans are the responsibility of the parent, not the student, when it comes to repayment. Some parents choose to take them out when their child’s college costs can’t be covered by other financial aid. And according to a new NerdWallet survey, more than 1 in 5 parent PLUS student loan borrowers (21%) say they regret taking on the debt.

In the NerdWallet survey of more than 2,000 U.S. adults — among whom 366 have federal student loans, including 130 with parent PLUS loans — conducted online by The Harris Poll, we asked parent PLUS loan borrowers how their debt is affecting their finances and future plans. We also asked federal student loan borrowers how they’re reallocating money during the current automatic forbearance, or payment pause, and when they think they’ll be ready to resume making federal loan payments.

Key findings

• Parent PLUS loans are hindering some borrowers’ futures: The survey shows that 26% of Americans who have parent PLUS loan debt say they’ll be unable to retire as expected because of it. Close to 3 in 10 parent PLUS borrowers (28%) say they’re counting on loan forgiveness to help wipe out a large sum of their debt.

• Would-be student loan payments are going toward necessities for many: Federal loans have been in automatic forbearance during the pandemic, and over a third of those with federal loan debt (34%) say they’re using the money for necessities.

• Some with federal student loan debt say they can’t make payments until next year or later: The survey found about 1 in 10 federal student loan borrowers (11%) don’t think they’ll be able to make payments until 2022 or beyond, and another 1 in 10 (10%) don’t know when they’ll be able to make payments again. Of those with federal student loan debt, women are much more likely to be unsure of when they can restart payments than men (17% vs. 4%).

“At this point, student loan debt is affecting families across multiple life stages,” says Cecilia Clark, a NerdWallet authority on student loans. “We have new high school graduates signing up for debt, young adults burdened with debt as they try to build their lives and others near retirement who see their financial lives upended by this debt. And many of those retirement-aged debtors are parents and grandparents who took out loans to help a loved one get through school.”

Student loan debt is an intergenerational issue

Students and recent grads aren’t the only ones grappling with the weight of rising education costs and loan payments. A 2020 JPMorgan Chase & Co. Institute report that analyzed the student loan debt of more than 300,000 Chase Bank customers found that “almost 40% of individuals involved in student loan repayment are helping someone else pay off their student loan debt.” The majority of these helpers don’t have their own student loan debt, but close to a third (31%) appear to be making student loan payments for themselves as well.

The ways in which families help students with the burden of education costs vary. While some parents or grandparents take on or co-sign student loans, others turn to credit cards or loans secured by their assets. A 2017 AARP survey of more than 3,000 adults found that a quarter of private student loan co-signers ages 50 and older (25%) had to make a loan payment because the student borrower failed to do so. Other forms of borrowing to help student borrowers included co-signing private loans, running credit card balances, taking out parent PLUS loans, borrowing against the family home or borrowing against retirement accounts.

NerdWallet’s survey asked parent PLUS student loan borrowers about the impact of this debt on their lives. We found that around a third (34%) aren’t confident they’ll be able to make payments beginning in October 2021 [3] — when federal student loan payments were expected to restart before the Biden administration extended forbearance through Jan. 31, 2022. Nearly 3 in 10 borrowers (28%) say they’re counting on student loan forgiveness to help wipe out a large sum of their loan debt.

What you can do

Know your options as a parent PLUS borrower. When it comes to parent PLUS loan repayment, there may be ways to minimize interest costs, reduce payments or even transfer the loan to the student you borrowed it for (with their consent, of course). One option is refinancing student loans with a private lender, but be cautious about taking this route. You may get a lower interest rate, but you’ll lose the federal benefits your PLUS loan comes with, like potential loan forgiveness or income-based repayment plans.

Some lenders allow the student to refinance parent PLUS loans in their name, legally taking on that debt from their parents. This course of action generally requires the student to have good credit and a low debt-to-income ratio, and also eliminates those federal benefits.

For those who want or need the benefits that come with federal student loans, seeking out options within the federal program is best. Check out income-contingent repayment or PLUS loan forgiveness to see if you qualify.

Know your options as a private loan co-signer. According to the AARP survey, 71% of co-signer borrowers ages 50 and older didn’t know they could request to be removed as a co-signer on the loan. Many private student loans have a co-signer release option; you just need to check your lender’s criteria, which likely include an application from the primary borrower and a certain number of on-time payments.

Alternatively, since private loans don’t have federal benefits, the student can refinance the loan in their name, possibly getting a lower interest rate in the process. Either option can remove the co-signer’s responsibility for the debt in the event of nonpayment by the student.

Avoid helping with education costs at the expense of your retirement. An April 2021 NerdWallet survey of parents with children under 18 found that saving for their child’s education was a priority over investing for retirement. And while there’s nothing wrong with the desire to limit your kid’s educational debt burden, it’s not a good idea to do so at the cost of your own future.

“As a parent myself, I understand the urge to want to sacrifice everything for your kids,” Clark says. “But setting yourself up for failure in retirement is probably not going to help your children. Be honest with them about your financial limitations and talk about funding options and school choices that will empower both of you.”

Some using would-be student loan payments for basic needs, paying down other debt

Since March 2020, federal student loan borrowers — which include parent PLUS loan borrowers — have had their loans in automatic forbearance, a short-term payment relief set to end after Aug. 31, 2022. During this payment pause, federal student loans haven’t been accruing interest. The COVID-19 pandemic has been financially devastating for so many, and this automatic forbearance has given student loan borrowers of all ages some room to make progress on other financial goals or even just make sure bills are getting paid.

According to our survey, over a third of federal student loan borrowers (35%) have kept making payments despite the pause, but others have put this would-be payment money toward necessities (34%), paying off/down credit card debt (20%) or investing for retirement (16%).

What you can do

Make a plan for how to use payment money for the remainder of the pause. With the automatic forbearance extended over the next several months, it’s a good idea to consider how to best use your would-be payment money. While you may choose to make payments as normal because student loan debt payoff is a priority for you, paying off high-interest debt or bulking up your emergency savings may be a better option.

“Now is the time to figure out how you will start making payments, if you aren’t already doing so,” Clark says. “If you still have other debts to pay, don’t have any savings and will struggle when the bill comes, talk to your servicer now about enrolling in an income-driven repayment plan. If you’re feeling good about your financial situation, start putting your payment amount to the side. This approach will help you make sure those payments fit into your budget and will give you a lump sum to put down on your debt before payments resume.”

Not everyone is ready to start making payments again

For some, resuming student loan repayment won’t be a major struggle. While 35% of federal loan borrowers are currently making student loan payments despite automatic forbearance, an additional 14% of borrowers say they could make payments but aren’t because of the payment pause, and an additional 13% of borrowers say they can start making payments again once automatic forbearance ends. [3]

However, not everyone is ready to resume loan payments. Around 1 in 10 federal student loan borrowers (11%) say it’s not financially feasible for them to make payments again until 2022 or beyond, and an additional 10% don’t know when they’ll realistically be able to make loan payments again, with women more likely to be unsure of this than men (17% vs. 4%).

What you can do

Understand the options if you can’t make payments once the pause ends. If you don’t think you’ll be able to make payments on your federal student loans once they resume next year, you have a few options to lower or postpone your payments. Like with parent PLUS loans, other federal loan borrowers can refinance their loans with a private loan servicer to potentially lower interest rates and payments, but the downside remains that the federal loan benefits will no longer apply. Furthermore, if widespread student loan forgiveness eventually occurs, you would still owe that debt to the private servicer.

A better option may be income-driven repayment, which caps payments to a percentage of your discretionary income and forgives any remaining balance after 20 or 25 years. This option will likely cost you more in interest over the life of your loan, but can reduce monthly debt payments to a manageable amount for your budget.

If repayment isn’t possible, you can turn to deferment or forbearance. Student loan deferment is often tied to specific financial hardship — such as being unemployed or receiving welfare benefits — and allows you to pause payments for up to three years. However, if you don’t have subsidized loans, interest will accrue during deferment, meaning a larger bill will be waiting for you when deferment ends.

Student loan forbearance is a last resort for those who don’t qualify for deferment. You can put your loans in forbearance for 12 months at a time, but interest will continue to accrue, even if you have subsidized federal loans, so this can be an expensive option. It’s a path forward in a pinch, but ideally not a long-term solution.

“Be honest with yourself and be proactive about your financial situation,” Clark says. “Student loan bills are coming back, and movement on broad forgiveness is stalled. If you know you’ll have trouble paying, make a plan now.”

Methodology

This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from July 26-28, 2021, among 2,074 adults ages 18 and older (366 with federal student loans, including 130 with parent PLUS loans). This online survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Mauricio Guitron at [email protected].

Footnotes:

[1] According to the U.S. Department of Education, federal student loan debt outstanding is $1.592 trillion as of Q2 2021. According to MeasureOne, private student loan debt outstanding is $136.31 billion as of Q1 2021.

[2] According to the U.S. Department of Education, parent PLUS student loan debt outstanding is $103.6 billion as of Q2 2021.