Challenges and Opportunities: Restarting Federal Loan Payments in 2023
After a three-year pause, federal loan payments are resuming in October 2023. These payments are predicted to have neither positive nor negative economic effects on the US economy. The timing, however, could be better. People are still dealing with the post-pandemic challenges and side effects. With new variants coming out, people face many of the same challenges they did back in the day when COVID-19 first appeared. Most families still struggle with growing interest rates, mounting debt, and rising inflation. With the continuation of monthly loan payments, households will need help to accommodate them into their tight monthly budget. Additionally, a slowdown in the job market and wage growth has resulted in people spending more and earning less. If this continues, people won’t have savings to rely on for a rainy day in the future.
The pandemic caused the three-year pause. To aid families in surviving the unprecedented situation, the government paused loans, including student loans and other federal loan payments. Low-income families were also given money to buy food and necessities to survive. Although this was a difficult time for everyone, the economy grew tremendously. Partly because this was the perfect time to buy homes, pay off educational debts, and other significant financial milestones. In the housing industry, especially, there was a decrease in competition compared to the years before, and buyers had more of a say in negotiating the price to what was comfortable for them to pay. It was also the ideal time to buy shares from developing companies like Costco, Apple, Tesla, etc, for a meager price. The pause allowed people to spend money building meaningful experiences with loved ones or creating valuable assets in their name. This extra money they now had, along with the federal aid they received, gave people who lived paycheck to paycheck some space to breathe. They now had a chance to battle the soaring inflation and put food on the table without planning out the next few months, trying to ensure they had enough money to get by.
With student loan payments beginning again, many borrowers face daunting figures in their monthly bills. Fortunately, government initiatives like the Saving on a Valuable Education (SAVE) income-driven repayment plan and other forgiveness programs aim to ease the burden on financially vulnerable households. People have found relief through these programs, offering more manageable monthly payments. The SAVE plan uses a person’s income and family size to calculate their monthly payment amount. Additionally, these plans are designed specifically so the loan balance won’t grow cause of unpaid interest accumulated since the last payment. Cause of such payment plans, people only had to pay about fifty percent of the amount due in some cases.
On Oct 4th, 2023, the Biden administration announced that an additional $9 billion be relieved in student debt. Including this relief, the total approved debt cancellation by the Biden administration is $127 billion for approximately 3.6 million Americans. Furthermore, people with complete and permanent disabilities have been granted automatic relief from federal and other loans. To break down the $9 million cancellation, the government spent “$5.2 billion in additional debt relief for 53,000 borrowers under Public Service Loan Forgiveness programs. Nearly $2.8 billion [forgiven in] new debt relief for nearly 51,000 borrowers through fixes to income-driven repayment plans. These borrowers have been in repayment for 20 or more years but never got the relief they were entitled to. [And] $1.2 billion [forgiven] for nearly 22,000 borrowers with a total or permanent disability”, as stated by the US Department of Education.
Individuals and families are adjusting their budgets and spending patterns to accommodate the return of student loan payments. For many, this means cutting back on discretionary spending, such as dining out or traveling. The desire to allocate funds towards these payments, deferred during the pause, is evident as many individuals return to a more structured financial approach. Although some individuals managed to pay down their student loan debt during the payment pause, benefiting their financial stability and wealth-building efforts, most didn’t. People were more worried about surviving the pandemic, so their debt wasn’t the topmost priority.
Ultimately, education should be provided for everybody. If education is said to be a human right and not a luxury, then why is college so expensive? The burden of student debt in the United States has reached alarming proportions, with millions of young adults grappling with the financial aftermath of pursuing higher education. College, today, for a full-time student, costs $48,965 on average at a private nonprofit college and an average of $21,035 at a public university. “In 1980, the price to attend a four-year college full-time was $10,231 annually — including tuition, fees, room and board, and adjusted for inflation — according to the National Center for Education Statistics. By 2019–20, the total price increased to $28,775. That’s a 180% increase,” as stated in The Forbes.
The payment pause offered a temporary respite from this growing burden. As the economy grew during this period, many households took the opportunity to reduce their debt, increase wealth, and stabilize their financial situations.
