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Navigating the End of the Student Loan Payment Holidays

Published: June 20, 2023 by Theresa Nguyen

After being in place for more than three years, the student loan payment pause is scheduled to end 60 days after June 30, with payments resuming soon after. As borrowers brace for this return, there are many things that loan servicers and lenders should take note of, including:

  • Potential risk factors demonstrated by borrowers. About one in five student loan borrowers show risk factors that suggest they could struggle when scheduled payments resume.1 These include pre-pandemic delinquencies on student loans and new non-medical collections during the pandemic.
  • The impact of pre-pandemic delinquencies. A delinquent status dating prior to the pandemic is a statistically significant indicator of subsequent risk.
  • An increase in non-student loan delinquencies. As of March 2023, around 2.5 million student loan borrowers had a delinquency on a non-student loan, an increase of approximately 200,000 borrowers since September 2022.2
  • Transfers to new servicers. More than four in ten borrowers will return to repayment with a new student loan servicer.3
  • Feelings of anxiety for younger borrowers. Roughly 70% of Gen Z and millennials believe the current economic environment is hurting their ability to be financially independent adults. However, 77% are striving to be more financially literate.4

How loan servicers and lenders can prepare and navigate

Considering these factors, lenders and servicers know that borrowers may face new challenges and fears once student loan payments resume. Here are a few implications and what servicers and lenders can do in response:

  • Non-student loan delinquencies can potentially soar further.

Increased delinquencies on non-student loans and larger monthly payments on all credit products can make the transition to repayment extremely challenging for borrowers. Combined with high balances and interest rates, this can lead to a sharp increase in delinquencies and heightened probability of default.

By leveraging alternative data and attributes, you can gain deeper insights into your customers’ financial behaviors before and during the payment holidays. This way, you can mitigate risk and improve your lending and servicing decisions.

Note: While many student loan borrowers have halted their payments during forbearance, some have continued to pay anyway, demonstrating strong financial ability and willingness to pay in the future. Trended data and advanced modeling provide a clearer, up-to-date view of these payment behaviors, enabling you to identify low-risk, high-value customers.

  • Streamlining your processes can benefit you and your customers.

With some student loan borrowers switching to different servicers, creating new accounts, enrolling in autopay, and confirming payment information can be a huge hassle. For servicers that will have new loans transferred to them, the number of queries and requests from borrowers can be overwhelming, especially if resources are limited.

To make transitions as smooth as possible, consider streamlining your administrative tasks and processes with automation. This way, you can provide fast and frictionless service for borrowers while focusing more of your resources on those who need one-on-one assistance.

  • Providing credit education can help borrowers take control of their financial lives.

Already troubled by higher costs and monthly payments on other credit products, student loan payments are yet another financial obligation for borrowers to worry about. Some borrowers have even stated that student loan debt has delayed or prevented them from achieving major life milestones, such as getting married, buying a home, or having children.5

By arming borrowers with credit education, tools, and resources, they can better navigate the return of student loan payments, make more informed financial decisions, and potentially turn into lifelong customers.

For more information on effective portfolio management, click here.

1Consumer Financial Protection Bureau. (June 2023). Office of Research blog: Update on student loan borrowers as payment suspension set to expire.

2Ibid.

3Ibid.

4Experian. (May 2023). Take a Look: Millennial and Gen Z Personal Finance Trends

5AP News. (June 2023). The pause on student loan payment is ending. Can borrowers find room in their budgets?

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