Borrowers stare down student loan repayments after years of high inflation

Student loan borrowers are frustrated and anxious just three months after being forced to start repaying their loans after a three-year hiatus.

About 40 million Americans with federal student loans will start accruing interest on their loans in September. Payments will be made again in early October.

As the three-year moratorium draws to a close and the Supreme Court decides the fate of student-loan forgiveness, borrowers, worried that pressing debt will delay other student-loan goals, budget and I’m desperate to figure out the loan situation. future.

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Since March 2020, student loan borrowers have been ineligible for federal loans after former President Donald Trump issued an executive order suspending interest accruals and payments to the government.

Despite several previous extensions, the suspension deadline has officially expired with the debt ceiling deal signed between President Joe Biden and Speaker of the House Kevin McCarthy (R-California). As a result, student loan borrowers have been forced to give up hope for the next extension.

Student-loan advocates and progressives accused Mr. Biden of betraying trust by agreeing to give up payments before the president knew the fate of the student-loan bailout.

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The Supreme Court is set to rule this week on whether a Biden order that would negate up to $20,000 in student loans for millions of Americans is constitutional.

Cody Hounanian, executive director of the Center for Student Debt Crisis, said he knows thousands of people who don’t feel ready to start paying again.

“We have surveyed tens of thousands of borrowers over the past three years and we are deeply concerned that many borrowers are still financially in thin ice,” Honanian said.

“The long-term economic impact of the pandemic, unprecedented spikes in inflation, and drastic changes to the federal student loan system have created insurmountable obstacles for many borrowers,” Honanian said.

Borrower reaction to future payments

For some, resuming payments is a sign that authorities don’t care about the welfare of student loan borrowers.

“To be honest, I felt like I was punched in the face,” said Marcus Jones, 23, who works for a financial company.

“Over the last few years, we as students have gone through a lot of things that most people can’t even imagine. “I don’t care,” Jones said.

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With the moratorium nearing its end, some borrowers are preparing to make monthly payments.

Financial analyst Liasia Monroe has a “feasible and stress-free plan” to get her loan repayments back, but the debt makes it difficult for “grad students like me to live the American Dream.” I can’t,” he said. .

Christian Delitis, deputy chief economist at Moody’s Analytics, told The Hill that many borrowers are gearing up to resume the moratorium, and that graduates who benefit financially from their degrees should be able to afford the expense. said he expected it.

Still, Delitis said, “there is a marginal group of borrowers in terms of financial stress, and this additional burden will force them to make tougher choices in terms of which bills to pay.” Stated.

With loan payments looming, borrowers are having to rethink important life decisions, such as when to buy a home.

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“You will never be able to do things like buy a home,” said Keisha Medina, a psychiatrist with $20,000 to $30,000 in student loan debt.

Borrowers face repayments in a volatile economy

Record-high inflation has also contributed to a significant increase in household spending over the past year.

Despite signs of easing, consumers are still feeling the strain, especially when it comes to housing.

Housing costs continued to be the main driver of inflation last month, despite data showing annual inflation growth reached its slowest pace in more than a year.

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Moody’s Delitis says student loan payments could set back about $86 billion in annual economic growth, assuming millions of borrowers who don’t get extra forbearance start paying about $300 a month. bottom.

“That’s a big deal,” Derritis said. “Perhaps this alone will not be enough to push us into a recession, but combined with the other factors underway, it is another headwind facing the economy…that could be the straw that breaks the back of a camel. there is potential.”

Still, if borrowers set up income-driven repayment plans (IDRs), the payment burden could be eased, Derritis continued.

Borrowers will need to monitor their IDR options closely as the Biden administration works on reforms aimed at taking effect next year. One such change involves cutting individual discretionary income that goes toward student loans from 10% to 5%.