Restart of student loan payments threatens


More than 40 million holders of federal student loans are to pay monthly installments again on October 1, when the lockdown imposed as part of the Covid-19 relief measures expires.

The freeze covered payments worth about $ 7 billion a month, the Federal Reserve Bank of New York estimated. Their resumption will drain some of household budgets and potentially slow consumer recovery.

Americans now have about $ 1.7 trillion in student debt, more than double their credit card debt. Politicians realize that it is not sustainable. But despite all the talk of last year’s campaign about loan waivers – including from President Joe Biden who pledged to write off at least $ 10,000 per borrower – there was no progress in deleveraging.

Americans fresh out of college or postgraduate programs when their incomes are typically lower tend to have an especially difficult time making it harder to pay. With the U.S. economy still running 7.6 million jobs below pre-pandemic levels, many more are likely to be unemployed.

But the student debt problem extends deeply into pretty much every segment of the population. Studies have shown that black borrowers are most likely to struggle. Both retirees and recent graduates are on the hook.

Before the pandemic, it was clear that Americans were struggling to meet their student debt obligations. Loans that were seriously overdue – more than 90 days late – exceeded $ 135 billion before the freeze, a figure higher than most types of debt.

The New York Fed warned that total NPL debt is likely to double as many borrowers have not yet reached the stage where they need to start paying.

What made the bottleneck worse is college degrees – which are much more common now – turned out to be diminishing returns assets in relation to higher earnings, according to a study by the St. Louis Federal Reserve. “For younger generations and for non-white students, the payouts are slightly lower than average,” write analysts William Emmons, Ana Hernandez Kent and Lowell Ricketts. “The conventional wisdom about college is no longer as true as it used to be.”

Feeling that the degrees haven’t reached expected incomes underpins some of the calls for debt relief. Senator Elizabeth Warren, D-Mass., Rep. Alexandria Ocasio-Cortez, DN.Y., and other Democrats called for write-offs of $ 50,000 or more per borrower.

Even some Republicans participated. Wayne Johnson, the Trump administration’s first head of student aid, said the student credit system was fundamentally broken. Not only did he propose $ 50,000 in debt relief, but he also proposed a similar amount of tax credits to those who had already paid for college.

Biden has resisted demands from his party to write off the loans. In early April, he asked Education Minister Miguel Cardona to prepare a memo on the president’s legal powers to cancel debt.

The administration has announced it will review existing programs aimed at reducing student debt, including what are known as income-based repayment plans, which tie a borrower’s monthly bills to the person’s income.

Other steps the government has taken include allowing employers to contribute to monthly student loan payments as a tax-free benefit. The March 2020 pandemic relief package allowed companies to reimburse their employees up to $ 5,250 annually.

Malia Rivera, a 46-year-old marketing director at Innovetive Petcare based in Austin, Texas, said her employer has partnered with GiftofCollege.com, a platform that bridges automatic payroll with student loans and college savings accounts.

Rivera said she made sure she kept payments on her own student loan even during the freeze. She said she learned after “accumulating late fees over the years and mastering the trials and tribulations of career advancement” that once paid, automatic deductions are the best way to go – and it has helped her Reduce balance from $ 38,000 to approximately $ 8,000.

For many borrowers, however, the Covid-19 repayment freeze has made a huge difference – and it’s now expiring.

Liz Tarzon, 49, who works for a nonprofit in San Francisco, has been saving on her student loan for more than 20 years. Last year she said, “For the first time since the repayment began, I feel like my head is financially above water.”

But she said she knew the postponement was temporary and she expected to make the payments through retirement – or beyond.

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