Student Loan Repayments Resuming Soon, Placing Financial Burden on Borrowers

Celina Chanthanouvong, a 25-year-old marketing professional in San Francisco, is left with approximately $200 each month after covering her essential expenses like rent, groceries, and car insurance. However, this doesn’t take into account her student loans, which have been temporarily suspended since the beginning of the pandemic. Once repayment resumes, she estimates her monthly payments to be around $300. The pause in repayments has been a crucial support for Chanthanouvong, allowing her to stay afloat financially.

However, the lifeline she has relied on for over three years is now being withdrawn. With the Supreme Court striking down President Joe Biden’s student loan forgiveness plan, over 40 million Americans will be required to resume their federal student loan payments in the coming months.

Many borrowers had hoped for debt reduction or complete forgiveness under Biden’s plan. The Education Department anticipated that without loan cancellation, borrowers would struggle to keep up with their payments, leading to historically high levels of delinquency. Among those most vulnerable are recent college graduates who completed their studies during the pandemic. For many of them, loan payments have been delayed, and they will now face the challenge of repaying their loans amidst rising inflation and economic recession forecasts.

Advocates express concerns that younger borrowers will face an unmanageable financial burden. Natalia Abrams, president of the nonprofit Student Debt Crisis Center, fears a surge in default rates among new graduates, unlike anything seen before.

Chanthanouvong graduated with a bachelor’s degree in sociology from the University of California-Merced in 2019. After struggling to find a job for a year, she now works full-time with a salary of $70,000, barely covering the high cost of living in the Bay Area.

Under President Biden’s cancellation plan, Chanthanouvong would have been eligible to have $20,000 of her debt forgiven, reducing her balance to $5,000. However, she never relied on this relief and instead invited her partner to share rent expenses. The financial strain has forced them to postpone or reconsider major life decisions, including having children, as they deem it financially irresponsible given their circumstances.

Among the 44 million federal student loan borrowers, approximately 7 million are under the age of 25, with an average loan balance of less than $14,000, the lowest among all age groups. However, borrowers with lower balances are more likely to default. This is driven by a combination of dropouts and graduates who struggle to secure well-paying jobs. The Federal Reserve Bank of New York reports that among those who defaulted in 2021, the median loan balance was $15,300, with the majority having balances below $40,000.

The resumption of student loan payments is expected to cost U.S. consumers a staggering $18 billion per month, as estimated by investment firm Jefferies. This sudden impact on household budgets is untimely for the overall economy, as the United States may be on the brink of a recession. Jefferies economist Thomas Simons reveals that despite the student loan moratorium, most Americans did not save their extra funds. Consequently, they will likely need to cut back on other expenditures such as travel and dining out to accommodate the loan payments within their budgets. Such belt-tightening could negatively impact an economy heavily reliant on consumer spending.

Noshin Hoque, a recent graduate with approximately $20,000 in federal student loans, enjoyed a sense of financial security due to the loan payment pause. Living with her parents in New York City and working for a nonprofit, she managed to save money and support her parents. This allowed her to splurge on gifts and experience a level of luxury together with her family. However, as loan payments loom, she and her husband, a medical school graduate, are preparing to face monthly payments of at least $400. To minimize accruing interest (forbidden according to their Islamic faith), they have cut expenses like restaurant meals and canceled vacation plans. The money they intended to set aside for their child’s education fund will now be directed towards loan repayments.

For newer borrowers, resuming loan payments presents logistical challenges as well. Rachel Rotunda, director of government relations at the National Association of Student Financial Aid Administrators, explains that they will need to identify their loan servicers, select a repayment plan, and navigate the payment system. The simultaneous influx of borrowers into the system is unprecedented, and a certain level of disruption is expected.

The Education Department has assured borrowers that it will strive to ensure a smooth transition when payments restart. They continue to advocate for Biden’s debt cancellation plan as a means to reduce the debt burden on borrowers and ease the transition.

For 30-year-old Beka Favela, the payment pause provided her with independence. After completing a master’s in counseling, she secured a therapist job that allowed her to move out of her parents’ house. With no loan payments to make, she started saving, purchased furniture, and made progress in paying off credit card debt. However, when the pause concludes, she anticipates monthly payments of approximately $500, which will consume most of her disposable income and leave little room for unexpected expenses. Favela worries that she may have to regress financially and potentially move back in with her parents to make ends meet, hindering her desire to progress in life.

Note: This article was created by the Big Big News education team with support from the Carnegie Corporation of New York. The AP is solely responsible for all content.

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