Borrowers Face Impending Student Loan Repayments Amidst High Inflation.
June 28, 2023: Student loan borrowers, who have enjoyed a three-year break from repayments, are now grappling with frustration and anxiety as the deadline to resume payments looms just three months away. In September, interest will start accruing on the federal student loan debt owed by approximately 40 million Americans, with payments due in early October.
As the three-year payment pause nears its end, borrowers find themselves in a precarious position, awaiting the Supreme Court’s decision on the fate of student loan forgiveness. Concerned about the impending debt, they are now scrambling to create a budget and assess their loan situation, fearing that it may impede their future goals.
The payment pause might not return. Since March 2020, student borrowers have been relieved of their federal loan obligations due to an executive order by former President Trump. Despite previous extensions, borrowers had to give up hope for another as the debt ceiling deal between President Biden and Speaker of the House Kevin McCarthy officially set an expiration date for the pause.
Biden’s decision to end the pause drew criticism from student borrower advocates and progressives who felt betrayed by the president’s agreement before knowing the outcome of student debt relief. The Supreme Court is expected to rule this week on the constitutionality of Biden’s executive order to eliminate up to $20,000 in student loans for millions of Americans.
Concerns of unprepared borrowers Many borrowers feel they need more time to resume payments, according to Cody Hounanian, the executive director of the Student Debt Crisis Center. The long-term economic impacts of the pandemic, surging inflation rates, and significant changes in the federal student loan system have created insurmountable obstacles for numerous borrowers.
Borrowers’ reactions to upcoming payments For some borrowers, the resumption of payments signifies a lack of concern for their well-being from officials. Marcus Jones, a 23-year-old finance company employee, felt “smacked in the face” by the lack of change or extended deadlines. He emphasized students’ challenges in recent years and the perception that their concerns still need to be addressed.
Preparations and challenges ahead While some borrowers, like financial analyst LyAsia Monroe, have devised feasible plans to resume loan payments, they believe that their student debt prevents them from living the “American dream.” Cristian deRitis, the deputy chief economist with Moody’s Analytics, predicts that many borrowers have been preparing for the end of the pause but acknowledges that those already facing financial stress will have to make difficult choices regarding bill payments.
Implications on borrowers’ lives The burden of impending loan repayments is causing borrowers to reconsider significant life decisions, such as purchasing a home. Keisha Medina, a psychometrist burdened with $20,000 to $30,000 of student loan debt, believes that her debt will prevent her from achieving the American dream of homeownership.
Impact of Repayments on an uncertain economy Record-high inflation rates have significantly increased household costs over the past year, particularly in housing. Despite signs of inflation easing, consumers continue to bear the burden. Housing expenses remain a primary driver of inflation, even as the annual growth rate slows down.
The economic impact of student loan payments is estimated to be approximately $86 billion per year if millions of borrowers who do not receive additional forbearance start paying an average of $300 per month. This additional burden, combined with other economic factors, could significantly challenge the economy.
Possible relief through income-driven repayment plans DeRitis suggests that income-driven repayment plans (IDR) could alleviate the burden of loan payments. Borrowers should closely monitor IDR options as the Biden administration plans to implement changes next year, including reducing the percentage of discretionary income allocated to student loans.