BusinessCA State WireEducationGeneral NewsJobs and careersPoliticsU.S. News The pause on student loan payments is ending. Can borrowers find room in their budgets? by Michael Nguyen June 7, 2023 written by Michael Nguyen June 7, 2023 0 comments Bookmark 68 In a favorable month, Celina Chanthanouvong is left with roughly $200 after covering her expenses, including rent, food, and auto insurance. This doesn’t include her student loans, presently frozen since the pandemic started, which are projected to amount to $300 per month. The halt on repayments has served as a crucial safety net for the 25-year-old. Chanthanouvong, a marketing professional in San Francisco, is unsure how to allocate funds to accommodate this debt. “Where would I even start in budgeting that amount?” she expressed. However, this safety net is being withdrawn after over three years. Congress approved a debt ceiling deal last week, stipulating the resumption of federal student loan payments for over 40 million Americans starting in late August. The Biden administration had targeted this timeline for months, and the agreement puts to rest any prospects for an extended pause, pending a Supreme Court decision on the president’s debt cancellation. Without debt cancellation, the Education Department anticipates a record number of borrowers defaulting on their loans. Graduates during the pandemic are particularly susceptible. Millions of these borrowers have yet to make a payment, and they will soon be facing bills amidst rampant inflation and recession forecasts. This situation is a significant concern for advocates as younger borrowers may not have the capacity to shoulder this financial burden. Natalia Abrams, the president of the nonprofit Student Debt Crisis Center, warns of potential default rates among recent graduates at unprecedented levels. Chanthanouvong, who graduated with a sociology degree from the University of California-Merced in 2019, found it challenging to secure employment for a year and depended on irregular jobs for income. Although she landed a full-time job last year, her $70,000 salary barely covers the Bay Area’s cost of living. A possible lifeline for Chanthanouvong is President Biden’s cancellation plan, which could erase $20,000 of her debt. However, she isn’t counting on it and has had her partner move in to share rent. This financial squeeze has made them reconsider major life decisions. New federal student loan payment requirements are expected to cost American consumers $18 billion monthly, according to investment firm Jefferies. This financial burden is poorly timed, as it comes when the U.S. is believed to be on the cusp of a recession. Despite the pause on student loan payments, Americans haven’t been able to save significantly, according to Jefferies economist Thomas Simons. To accommodate resumed loan payments, they’ll likely need to reduce other expenses — which could affect an economy heavily dependent on consumer spending. Resuming payments also creates logistical challenges, especially for new borrowers who need to understand their loan services, select a repayment plan, and learn to manage the payment system. Rachel Rotunda, director of government relations at the National Association of Student Financial Aid Administrators, warns this simultaneous return to the system is unprecedented and could lead to difficulties. The Education Department has pledged to make the resumption of payments as smooth as possible. In a statement, the agency expressed its commitment to continue advocating for Biden’s debt cancellation as a method to lighten borrowers’ debt and facilitate the transition. For individuals like Beka Favela, who enjoyed independence because of the payment freeze, the future is uncertain. With loan payments set to resume, she wonders whether she will have to move back home if her finances become strained. She worries, “Will it still be possible to keep moving forward?” This report included contributions from AP Economics Writer Paul Wiseman. The Big Big News education team is funded by the Carnegie Corporation of New York, but the AP alone is responsible for all content. 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