Federal student loans are back on Americans’ balance sheets

On Sunday, payments officially resumed for the ~45 million US adults with federal student-loan debt, following a three-year hiatus due to the Covid pandemic.

🎓 Some quick background: The deadline comes three months after the Supreme Court struck down President Biden’s initial plan to forgive up to $20,000 in federal student loans for all debt-holders.

It also comes two months after the Biden administration launched a second strategy aimed at reducing Americans’ federal student-loan debt, which involves more than a dozen policy changes scheduled to take effect over the next year (barring any legal setbacks).

• These include plans to eliminate all interest as long as borrowers are making regular payments, to cut payments on undergraduate loans from 10% of discretionary income to 5%, and to forgive borrowers’ debt following at least a decade of regular payments.

💰 Looking ahead… This month’s student-loan restart is projected to have a ripple effect across the US economy in the near future, as an estimated $7.5 billion each month starts flowing towards student debt, and away from retailers, credit card balances, medical debt, and other sectors.

A recent Credit Karma/The Harris Poll survey found 56% of borrowers say they’ll soon be forced to choose between making student-loan payments or covering necessities like rent and groceries. That figure includes 68% of borrowers with household incomes under $50,000, as well as 45% with household incomes above $100,000.

• Additionally, 45% of borrowers expect their loans to enter delinquency starting this month, though late penalties won’t be assessed until October 2024.

📊 Flash poll: Will the resumption of student-loan payments have an adverse effect on your personal finances?

Yes

No

I don’t owe any student loans