American households brace for $1,000 monthly student loan payments
With student loan payments set to resume in October, new research from Empower Retirement shows that one in three households expect to pay at least $1,000 monthly.
According to Empower, 59% of Americans plan to cut back on discretionary spending, and 32% expect to take on more credit card debt to prepare for the new increase.
There are currently 43.8 million federal student loan borrowers who will be required to begin paying back their loans in October—but 30% of borrowers say they’ve already reallocated their debt payments elsewhere.
The money that would’ve gone to paying down student loans is being used to pay down other bills or build up savings.
Telling borrowers to reallocate those payments back to student loans is easier said than done.
The federal government put loans in forbearance at the start of Covid in March 2020. It has been more than three years since millions of Americans have paid a penny toward student debt.
“This is going to feel like taking on a car loan and will put a strain on personal budgets for many borrowers, creating a swirl of uncertainty and a call for help,” said Jesse Moore, senior vice president of student debt at Fidelity.
No help on the way
Last year, the Biden Administration pledged to cancel up to $10,000 of student debt, but the Supreme Court ultimately struck down the White House’s plan.
“This October will be the first time in over three years that most federal student loan borrowers make a student loan payment, and a lot has changed in three years,” said Moore.
“These people have bought homes, started families, changed jobs and all have felt the impacts of inflation. That’s a huge extra expense that many people are not thinking about and will soon need to start budgeting for.”
Experts warn of a ripple effect on the economy and higher default rates from borrowers.
“What we’re worried about when the payment pause ends is that we go back to this pre-COVID trend of ever-increasing balances, not being able to make ends meet, going back to the status quo of lower homeownership rates, and higher delinquency and default rates,” said Laura Beamer, lead researcher for the Jain Family Institute.
If Americans can’t make ends meet, they’ll begin to tighten their spending. 47% have already cut back on restaurants and food deliveries, while another 40% have started to cut back on vacations and traveling.
As tens of millions of Americans struggle with student debt, universities of all sizes have seen their endowments skyrocket.
With Biden’s student loan bailout on hold, calls to hold universities accountable for the student debt explosion are growing louder.