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Student Loan Payments Are Back. What That Means for Millions of Borrowers

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Millions of Americans with federal student loans must start making payments again. Given the huge scale of student loan debt in the US — 40 million people collectively owe more than $1.6 trillion — there are concerns that discretionary consumer spending will take a hit. The issue is sure to play a role in the 2024 political campaign season, as many young voters fault Republicans and a conservative-majority Supreme Court for stymieing attempts by President Joe Biden, a Democrat, to ease the debt burden. And the rising cost of college and graduate school means student debt is a problem that’s not going away.

1. Why are payments resuming?

Payments were halted by President Donald Trump in March 2020 as Covid lockdowns began in the US. The freeze also temporarily gave borrowers a 0% interest rate on their loans. The moratorium was extended multiple times. But then in May, Biden and House Speaker Kevin McCarthy, a Republican, agreed to a plan to raise the nation’s debt limit and avoid a government shutdown. That deal included a provision that prohibited the Education Department from authorizing another extension after the latest one expired. Interest accruals resumed on Sept. 1, and bills will start coming due in October.

2. What role did the Supreme Court play?

In June, the Supreme Court blocked a separate initiative by the Biden administration that would have forgiven as much as $20,000 in debt per borrower, after six Republican-led states challenged the plan as exceeding the president’s authority. The court’s conservative majority ruled that Biden couldn’t use the so-called HEROES Act — a 2001 law that allows the education secretary to “waive or modify” student loan requirements — to forgive student debt. Biden said after the court’s ruling that he would try a different legal avenue to provide debt relief, invoking his authority under the Higher Education Act of 1965 to provide financial assistance for college students, though the Education Department hasn’t said how that might play out.

3. What were the arguments in favor of the Biden plan?

Biden, courting young voters, promised debt forgiveness during the 2020 campaign as part of his economic recovery plan. Left-leaning advocates pushed for that promise, calling it a matter of generational fairness. Biden also cited racial equity as a rationale, saying that Black students were more likely than others to have borrowed for school and were more likely to have taken out large loans. That exacerbates the already wide wealth gap between Black and white families.

4. What did critics of Biden’s plan say?

Some said the plan would be unfair to those who have already paid back student loans or who worked their way through college to avoid debt. Some progressive activists, like Senator Elizabeth Warren of Massachusetts, said that Biden’s plan didn’t go far enough. She called for forgiving as much as $50,000 in loans, while others pressed for deeper relief for targeted groups, like borrowers who didn’t finish their degrees. And people on all sides of the issue pointed out that forgiving debt would do nothing to alter the economics of education that produced the borrowing in the first place — the price tag for higher education that keeps rising faster than the rate of inflation.

5. How will the resumption of interest and payments affect borrowers?

Most borrowers have to resume payments sometime in October. For millions of people, that means having to add payments of about $300, on average, to their monthly budgets. That money has to come from somewhere, and there’s evidence that significant numbers of borrowers put off buying homes, getting married or having children because of their debt load.

6. How about the economy?

Budgets are already tight for many Americans, as the prices of essentials like housing and food have risen the fastest in four decades. To make room in their budgets for their loan payments, they’re expected to cut back other spending — to the tune of more than $100 billion annually. The US’s economic output could drop 0.1% in 2023 and 0.3% in 2024 as a result, Oxford Economics researchers said in July. Several retail brands including Walmart, Target and Levi Strauss have warned that the resumption of payments could negatively affect their earnings in the second half of 2023.

7. What happens now?

The Biden administration added a 12-month “on-ramp” through September 2024 to help those struggling to restart payments. Borrowers who miss monthly payments during this period aren’t considered delinquent, reported to credit bureaus, placed in default or referred to debt collection agencies.