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The student loan pause has ended, and interest has started accruing with the first payments due in October for millions of Americans.
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Posted 9/1/2023, 11:59:05 AM
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As the student loan pause ends, borrowers are facing critical deadlines, such as requesting a refund for payments made during the pause and updating their repayment plan options before interest starts accruing on September 1.
Major retailers are concerned that the resumption of federal student loan payments in October will decrease profits during the holiday season, as the pause in payments since March 2020 has given Americans more buying power.
The impending resumption of student loan payments after a three-year pause due to the pandemic is causing financial strain for borrowers, potentially leading to defaults and economic repercussions, despite some borrowers using the pause to pay down debt and improve their financial situation.
Student loan repayment resuming in the US this fall is expected to have a significant negative impact on the housing market, potentially affecting homeownership rates for at least a year, according to a poll conducted by Pulsenomics.
More Americans are struggling to keep up with car loan and credit card payments, particularly lower-income earners, as higher prices and rising borrowing costs put pressure on household budgets, signaling potential consumer stress; the situation is expected to worsen as interest rates continue to rise and paused student loan payments resume.
Despite economists' expectations, many student loan borrowers have already resumed making payments before the October deadline, potentially leading to a decline in consumer spending and affecting the economy as households adjust their budgets.
As part of President Biden's efforts to make student loans more manageable, the administration has created a 12-month on-ramp to repayment starting in October 2023, allowing borrowers to delay payments without negative consequences, although interest will still accumulate; however, the administration's new SAVE income-driven repayment plan may be a better option for some borrowers.
The resumption of student loan payments in October will add to the financial burden of Gen Z and millennial Americans looking to buy a home, further squeezing their ability to afford housing.
Borrowers with federal student debt can use their remaining funds in a 529 college savings plan to pay off up to $10,000 of their debt, providing a potentially appealing option as student loan bills are set to resume in October.
The resumption of student loan payments in October could have a substantial impact on consumer spending and the economy, potentially subtracting 0.8 percentage points from consumer spending growth in the fourth quarter and putting pressure on retailers during the crucial holiday shopping season; however, the full extent of the impact remains uncertain due to factors such as income-based repayment programs, the one-year grace period for missed payments, and the potential for borrowers to prioritize other expenses over loan repayments.
Women, who hold two-thirds of the $1.7 trillion federal student loan debt in the US, face a greater struggle with loan repayment due to lower earnings and the gender pay gap, which will become more evident as borrowers resume loan repayments after a pandemic pause, exacerbating their financial burden.
The Biden administration is implementing a 12-month "on ramp" to student loan repayment, protecting borrowers from consequences such as credit reporting and collections, while many student loan servicers are changing and borrowers may need to update their information. Additionally, monthly payment amounts may vary depending on the repayment plan and income-driven options.
Millions of student loan borrowers in the US are facing the challenge of resuming their loan payments after a moratorium, with some borrowers unsure of the due dates and payment amounts. Many are expected to experience financial stress and may need to cut back on spending or explore repayment options such as income-driven plans. The new SAVE plan launched by the Biden administration aims to provide affordable payments, but not all borrowers will see a decrease in their monthly payments.
Some federal student loan borrowers may have their payment due dates extended to November or December based on factors like their last payment before the pause, and recent graduates may get more time if they're still in their grace period.
Hundreds of thousands of borrowers in the US are set to receive at least $6 billion in student loan forgiveness, but a major loan servicer is being accused of violating the terms of the agreement, adding to the ongoing issues faced by borrowers as student loan payments resume.
The looming government shutdown may disrupt the return of student loan payments on October 1, as loan servicers struggle to handle the influx of borrowers seeking assistance.