How will the resumption of federal student loan payments affect your budget? Email senior writer Alicia Adamczyk for a future article.
The moratorium on federal student loan payments has been a financial boon for many households. But if and when the pause is lifted later this year as currently planned, it could create negative ripple effects throughout the economy.
Federal student loan repayments will cost an estimated 45 million borrowers around $18 billion per month, according to a calculation from Jefferies. The financial company has been warning about a coming “student loan cliff,” with many households likely to struggle to put hundreds of dollars each month toward their debt, particularly in this economy.
In turn, consumer spending will slow, having a “notable” impact on overall U.S. Economic growth, says Tom Simons, an economist at Jefferies.
“To the extent that this is probably not budgeted for by consumers, the impact will be funded by reductions in expenditures,” Jefferies notes.
The average federal student loan payment is $393 per month, Jefferies estimates. Adding that into monthly budgets will be difficult for many households, which are already struggling to stay afloat as the cost of living grows higher and higher. Credit card debt is skyrocketing as costs have increased, and the savings many households accrued earlier in the pandemic have dwindled. Two years of inflation have hit household balance sheets hard.
At the same time, thanks to the moratorium, the delinquency rate has been basically nonexistent for student loan debt. Not only will that change, but the firm previously said it is also “almost certain” that delinquent rates for other types of debt—like mortgages, auto loans, and credit card debt—will increase. More households will need to make tough choices between what they pay and when.
“The end of the moratorium is going to be a shock to a significant number of household budgets,” Simons writes.
Federal student loan payments have been suspended for more than three years since the pandemic began. They are currently scheduled to restart 60 days after the U.S. Supreme Court reaches a decision on President Joe Biden’s student loan forgiveness plan, or 60 days after June 30, whichever is first.
Biden’s plan would forgive federal student loans for most borrowers, up to $20,000. The Supreme Court is currently deciding the outcome of two cases that challenge the legality of the cancellation measure.
Borrowers are already anxious about how to budget for the impending monthly bills.
“This is a year I may have to move, and having to factor in rent and what those adjustments might be, that stresses me out,” Lilly Stuecklen, a 27-year-old who has been steadily paying down around $66,000 in debt, previously told Coins2Day.
