Act Now: Student Loan Borrowers Brace for the End of Reprieve

In October, millions of Americans will have to start repaying their federal student loans. This entails monthly payments that can average hundreds of dollars. To prepare for this, borrowers are finding ways to cut expenses, take on extra work, and explore options to reduce their monthly payments. Megan McClelland, a 38-year-old counselor at Petaluma High School in California, has begun requesting shifts in catering and wineries to supplement her income. During the three years that payments were suspended due to the pandemic, McClelland managed to pay off her car loan and save for the first time. While she can put the $235 she was spending on her car payment toward her student loan, she still needs to allocate or earn an additional $270.

McClelland commented, “It had been a huge relief the past few years to not have that financial burden. In the next months, I’m looking to see where I can scale back in my budget. Probably less going out to eat, and more picking up side gigs.” President Biden’s administration had proposed a plan to cancel $400 billion in student loan debt, but it was rejected by the Supreme Court. Some borrowers have applied for adjustments to their payments under the new SAVE plan or prior income-driven repayment options. The SAVE plan, short for “Saving on a Valuable Education,” enables borrowers to make lower payments based on a percentage of their discretionary income.

The impact of millions of people suddenly having less discretionary income on the economy is still unclear. Target’s chief financial officer mentioned on an earnings call last month that restarting student loan payments will add pressure to the budgets of tens of millions of households. This sentiment was echoed by the financial leaders of Best Buy and other retailers. A restaurant-industry observer in Boston, as mentioned in the Federal Reserve’s latest survey of economic conditions, reported that workers are taking on more hours, and credit card debt has surpassed $1 trillion for the first time. TransUnion, a credit bureau, revealed that over half of student loan holders accumulated credit card debt during the pandemic. Additionally, consumer savings, which hit their peak in 2021, are now declining.

Although the Supreme Court struck down President Biden’s original plan for loan forgiveness in July, the Public Service Loan Forgiveness program remains available to many borrowers. The White House has stated that it will use the Higher Education Act to extend cancellation to more borrowers, and the details are currently being determined through a process known as “negotiated rule-making.” Other sources of relief for borrowers include false certification, borrower defense, closed school discharges, total/permanent disability discharges, and alternate repayment programs such as income-driven repayment. McClelland now dedicates a significant amount of time counseling high school students on avoiding burdensome loans. She stated, “I had no financial guidance when I was younger, from my own parents or from school. I didn’t ever understand the long-term impact.” Read more about student loans here.