As the world slowly recovers from the impact of the pandemic, some borrowers who have been struggling with their personal finances may find it difficult to make ends meet as student loan payments are expected to resume later this year. This has raised concerns among younger borrowers who may not be financially ready to resume payments.
According to Wall Street Journal reporter Gabe Rubin, after several extensions, student loan payments are expected to resume later this year. The Supreme Court is currently hearing arguments surrounding President Biden’s student loan forgiveness proposal, and the decision is expected by the end of the Court’s term in late June. The program would cancel up to $20,000 in debt for people who make under a certain income threshold and comply with certain other requirements.
However, younger borrowers may struggle to resume payments as they are already being squeezed by high inflation and rising interest rates. Borrowers in their 20s and 30s reached 90 days or more delinquency on credit card debts and auto loans at a higher rate in the fourth quarter of 2022 than before the pandemic. Millennials and Gen Z consumers accounted for about 30% of spending in 2021, up from approximately 25% in 2019, according to the labor department.
This raises concerns that younger Americans are less likely to have the savings to tap when their finances are stretched, which raises the likelihood of them defaulting on loans or being late on credit cards and facing mounting debt in all sorts of areas of their life.
The Biden Administration has made the higher risk of defaults coming out of the payment pause one of their main legal reasons for the mass student debt cancellation program. On the other side, Congressional Republicans argue that the continued payment pause has cost well over $150 billion in accrued interest and uncollected payments, and opponents of the mass debt cancellation program simply do not think that the Biden Administration has the constitutional ability to decide that because these borrowers may have higher default risks, they deserve to have all of this debt canceled.
In conclusion, the resumption of student loan payments is expected to cause financial challenges for many borrowers, particularly younger Americans who are already being squeezed by high inflation and rising interest rates. While the debate on student loan forgiveness continues, it is important for borrowers to assess their financial situations and make necessary adjustments to ensure they are able to meet their payment obligations.