Student loan borrowers prepare for budget strains as repayments begin
Darliah Adams is so concerned about her federal student loan payments restarting on Oct. 1 that the mother of one from Birmingham, Alabama, has already taken on a second job.
Adams is among the millions of people in the U.S. who have some kind of federal student loan debt. And as repayments are set to begin for the first time since the start of the pandemic, many borrowers told Scripps News they may have to choose between putting food on the table and paying their bills.
“I’m dreading it so much,” Adams said. “I’m nervous.”
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Adams is not shy about her concerns or current financial situation. The 27-year-old owes $38,000 in federal student loans and her new monthly payment will be around $530 a month. The customer service representative takes home around $1,500 a month, meaning she’ll have little money left once she pays the bills and buys groceries.
“And there’s no help so it’s like we’re drowning in debt,” she said. “With not only student loans but everything else and there’s no way to catch up.”
The Department of Education estimates 43 million people in this country owe a collective $1.6 trillion in federal student loan debt. Many have not made a student loan payment since March of 2020.
Federal student loan repayments have been paused for so long in this country that there are nearly three graduating classes of college students who have never had to manage their finances while paying those student loan bills. It’s one of the many reasons financial experts are concerned about the overall impact the resumption of payments will have on the broader economy.
“I think people have really gotten used to having more money in their budget than they did previously,” said Nick Wolny, a senior editor at CNET Money.
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Wolny is also among the millions who will start paying student loan bills again in October. His biggest advice, even at this late stage, is for borrowers to educate themselves on new repayment plans. But Wolny is also concerned that there could be deeper economic impacts for the economy, as millions of people will suddenly have a lot less cash to spend.
“This holiday season will really be a test for a lot of people as they have one more ball to juggle,” he said.
While a government shutdown is on the horizon, federal officials anticipate they have enough funding to continue student aid operations for a couple of weeks and call centers will remain operational next week. However, a prolonged shutdown could “substantially disrupt” long-term servicing support for borrowers.
The Biden administration has also rolled out the SAVE plan — a new income-driven repayment plan to help borrowers plan for upcoming payments. Many can cut their monthly payments to zero based on their income.
Even with more repayment options, though, Spencer Dixon with the Student Debt Crisis Center believes many borrowers are going to struggle with those bills, especially given the role of inflation.
“You have borrowers who have a substantial amount of debt and struggle to pay monthly payments and aren’t used to doing that for the last three years,” Dixon said. “It’s going to be tough.”
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