By Jessica Price, Speedycash.com
After more than three years of removing student loan payments from their personal budgets, consumers who carry student loan debt have resumed payments.1 The lengthy pause stemmed from an emergency response plan that was put in place during the COVID-19 pandemic.
As borrowers restart their monthly payments, the ripple effect that may take place is hard to gauge. Although the first payments were not due until October 1, 2023, interest began accruing1 a month prior on September 1, 2023. The exact due date, amount due, and other pertinent information will be individual to each borrower and accessible via their loan service provider. Anyone who is unsure which company is currently servicing their loan(s) should visit StudentAid.gov and identify their provider ahead of resuming payments to assure a smooth transition. Creating a plan for repayment2 and taking advantage of the various programs and options available will be beneficial, but no matter the route borrowers choose the destination is the same: repayments have restarted, ready or not.
Avoiding default will be a top priority for many borrowers, which may impact monthly budgets and access to needed funds. To help resume payments successfully, a plan should be in place utilizing all available tools and options. For example, one option to consider if you qualify, is the income driven repayment plan (IDR)3 which was put in place to help borrowers who will struggle to resume payments and continue to make ends meet simultaneously.
Beyond the student debt that is putting pressure on the pocketbooks of more than 43 million Americans,4 inflation continues to rise5 albeit at a slower pace than expected as of July 2023. Housing and food costs remain higher than pre-pandemic levels, but some spending categories are beginning to cool. Hope remains high for economists and consumers alike that a leveling of expenses will take hold and lessen the financial sting that is being felt at some level by most, if not all, citizens.
With inflation in mind, however, in conjunction with the resumed student loan payments, it has never been more important for people to have a budget in place and to build savings if possible. A safety net isn’t possible for everyone because so many people are living paycheck-to-paycheck and barely making ends meet.
When the Ends Don’t Meet
In some situations, having a backup plan that includes a good working relationship with a reputable lender is important. Lenders who are members of the Online Lenders Alliance (“OLA”) are a great choice for borrowers who need assistance with financial burdens that stretch beyond their means and available resources, particularly when those financial needs are urgent. As consumers begin paying their student loan payments, the potential need for a personal loan to assist with certain unavoidable costs may rise, and it will be imperative that borrowers work with lenders who adhere to the high standards outlined and upheld by OLA members.
Budgeting and Prioritizing
With all of this in mind, how can borrowers navigate prioritizing their expenses which will, once again, include student loan payments? Creating a budget will be a vital step to planning, but understanding the priority of each of a borrower’s additional debts and expenses will be equally important. Basic essentials must be accounted for first and foremost,6 of course. Beyond shelter, food, clothing, and the basics needed for day-to-day life, debts can be sorted into a priority list based on various factors including interest rates, payments, total amount due, or whether a debt is currently delinquent and a potential risk if payments are not made in full, on time.
In theory, however, student debt will be at or near the top of a borrowers’ priority list beyond basic expenses, according to U.S. News,6 because student debt “is so difficult to be discharged” which means delinquency can have serious consequences.
Potential Complications of Resuming Student Loan Payments
The reality of resuming student loan debt payments, for many borrowers, will be complicated. After years of payments being on pause, many are likely to feel the stress of resuming payments, particularly at a time when other costs seem to be steadily rising.
It has weighed heavily on many people’s minds that there could be a similarity between the potential upcoming economic ramifications of resumed student loan payments and past financial disasters.7 The likelihood of a collapse as a result of student loan debt payments restarting is not high according to experts;7 however, that does not mean that there will not be effects felt by the average consumer as they fight to pay down their debt and maintain their other financial commitments. Many people took on additional debts8 over the course of the student loan payment pause that will make budgets tighter when payments resume.
So, what does this mean for the average borrower resuming their student loan payments? Most households are likely to enforce a tighter budget. It will be increasingly important for anyone resuming student loan debt payments to take pause and consider their ability to repay, apply for relief and help where possible, and to create a budget that will help them navigate the on-ramp period9 which will help borrowers avoid penalties if they are unable to immediately resume their payments. Still, for some people, these programs and even the best laid plans may not be enough.
When the pandemic began, there was panic about health but also panic about finances and financial stability. Many people made big decisions, such as buying homes in order to feel safer in some way or another. The true cost of some of these decisions will begin to arise over the next year. Many consumers will begin repaying their loans immediately. Others will likely wait since there is an on-ramp period9 where penalties will be slightly lessened for those who do not pay—another bit of assistance created by the government.
Some people will inevitably default on their loans. When the proposal for up to $20,000 in student loan forgiveness per borrower was struck down by the Supreme Court this summer, many people who were hoping for reprieve and a softer landing when loan payments and interest resumed had to rethink their plans for student loan repayment.
At this point, the effects of the rolled-out repayments are conjecture, but one thing is certain: over 43 million people4 are about to begin repaying loans and lowering their monthly expenditures in other categories accordingly. Not everyone is going to be able to do so easily. But having a plan in place and knowing what to expect can be an important step to successfully managing these new financial challenges.
1Haverstock, Eliza (2023, Aug 30). When Do Student Loan Payments Resume? Retrieved from: https://www.nerdwallet.com/article/loans/student-loans/federal-student-loan-forbearance-extended-yet-again
2Haverstock, Eliza (2023, Aug 28). Student Loan Checklist: 2023 Payment Restart Step-by-Step Guide Retrieved from: https://www.nerdwallet.com/article/loans/student-loans/student-loan-checklist-2023-payment-restart-step-by-step-guide
3Consumer Financial Protection Bureau Options for repaying your federal student loan Retrieved from: https://www.consumerfinance.gov/paying-for-college/repay-student-debt/federal-student-loans/
4Hahn, Alicia (2023, Jul 16). 2023 Student Loan Debt Statistics: Average Student Loan Debt Retrieved from: https://www.forbes.com/advisor/student-loans/average-student-loan-debt-statistics/
5Cox, Jeff (2023, Aug 10). July CPI report shows inflation gauge rose 3.2%, less than expected Retrieved from: https://www.cnbc.com/2023/08/10/cpi-inflation-july-2023-.html
6Sherman, Emily (2023, Aug 29). How to Prioritize Your Debts When Student Loan Payments Resume Retrieved from: https://money.usnews.com/loans/student-loans/articles/how-to-prioritize-your-debts-when-student-loan-payments-resume
7Parker, Tim (2023, Aug 19). Is Student Loan Debt the Next Financial Crisis? Retrieved from: https://www.investopedia.com/financial-edge/0212/is-student-loan-debt-the-next-financial-crisis.aspx
8Renter, Elizabeth (2023, Aug 8). 4 Ways Restarting Student Loan Payments Could Impact Economy Retrieved from: https://www.nerdwallet.com/article/loans/student-loans/data-student-loan-restart
9StudentAid.gov Prepare for Student Loan Payments To Restart Retrieved from: https://studentaid.gov/manage-loans/repayment/prepare-payments-restart