As student loan payments resumed this month for nearly 27 million borrowers, early data from the Census Bureau’s latest household pulse survey reveals a growing strain on households’ ability to meet essential expenses. The survey, conducted from Sept. 20 to Oct. 2, reported that 41.2% of adults faced difficulties paying household bills, a significant increase from 37.3% in the previous polling period (Aug. 23 to Sept. 4). This figure marks the highest percentage since the survey began addressing this question in August 2020.
Notably, the financial stress related to paying household expenses was predominantly observed among households with a college degree and income ranging between $50,000 and $150,000. This suggests that the resurgence of student loan payments is a primary source of heightened financial pressure for consumers, according to Torsten Slok, chief economist of Apollo Global Management.
Barry Coleman, vice president of program management and education at the National Foundation for Credit Counseling, expressed little surprise at the Census data, stating, “Borrowers have gotten used to spending money that they would have spent on student loan payments, on household necessities.” Coleman further highlighted a precarious financial situation for many, living paycheck to paycheck without sufficient savings to cushion against rising costs or financial shocks.
Preceding the restart of payments, surveys and retail industry executives alike predicted such challenges. A September survey of 402 student loan borrowers by New York Life revealed that 27% were uncertain about how to manage their loan repayments in the current month. Additionally, during the hiatus, borrowers took on new financial responsibilities, with 53% acquiring a new credit card, 36% obtaining a car loan, and 15% now managing a mortgage or personal loan, as found by a recent TransUnion study.
Jared Costigan, a consultant at Student Loan Planner, noted, “In the $50,000-$150,000 income range, some borrowers have taken on additional fixed expenses during the COVID payment freeze, such as a new car payment or a larger housing expense, and are now feeling a squeeze on their budgets with the student loan payments.”
A study by the Federal Reserve Bank of New York projected a minimal overall impact on the economy, estimating an average reduction of $56 per month in spending, resulting in a 0.1-percentage-point decline in aggregate spending from August levels.
Factors contributing to this limited impact include early resumption of payments by some borrowers, relief measures implemented by the Biden administration, and the availability of the Saving on a Valuable Education (SAVE) plan. However, accessibility issues to the SAVE plan have been raised, with some borrowers facing extended wait times and complexity in enrollment.
Notably, the SAVE plan does not extend to parents who borrowed federal loans for their children’s education. This omission may account for some of the struggles reported by adults in the Census survey.
Analysts warn that the financial strain detected in the recent Census survey may escalate in the coming months. Ella Azoulay, a research and policy analyst at the Student Borrower Protection Center, anticipates potential challenges for those who never graduated from college but are still repaying student loans. “I imagine things will be much worse financially for those borrowers who didn’t graduate and will be receiving bills, too,” Azoulay said.
As higher inflation rates come into play, experts like Barry Coleman anticipate further short-term financial difficulties. “The reason is many consumers have simply put student loan repayment on the back burner and have not proactively considered how they will continue making student loan payments in the context of higher inflation,” Coleman explained.
Source: Yahoo Finance
