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Worry Widens as Student Loan Repayment Pause Ends

After a federal hiatus, the resumption of student loan repayment following this summer has raised distress among debt-ridden students, reports Morning Consult. Many voiced their apprehensions about probable defaults in payments.

In a revealing survey, the majority of borrowers (62%) admitted they might not manage to meet at least one payment. About 56% voiced the fear of completely defaulting on their loans. Notably, two-thirds of these borrowers are ready to extend their working hours or seek extra work to pay off their student loans.

The Weight of Repayment Resumption

The prospect of returning to monthly payments in the shadow of increasing inflation, rising interest rates, and a looming recession is bound to have repercussions beyond the daily battle to repay loans, the report stated. For the average American family grappling with student debt of over $58,000, the coming weeks are fraught with critical challenges as they brace for repayments.

In a surprising revelation, the difficulty of returning to student loan repayments is not confined to lower and middle-income households. A significant proportion of those earning above $100,000 voiced their concern too. In this group, 73% of borrowers expect to miss a payment, and 69% foresee a default.

Limited Relief in Sight

Since 2020, the federal pause on student loan payments has provided some relief for borrowers amidst the COVID-19 pandemic. However, recent legal provisions prevent President Joe Biden from extending this relief further. Consequently, interest on loans will start to accrue from September 1, with the first payments due in October.

For private student loan borrowers, the situation is even more complex. The federal relief will not apply to them, but they may consider loan refinancing at a lower interest rate to reduce their monthly payments.

New Initiatives to Ease the Burden

Following the Supreme Court’s rejection of Biden’s student loan forgiveness plan, the president introduced new measures to mitigate student debt. A 12-month “on-ramp” program, scheduled from October 1 to September 30, 2024, could offer some assistance.

The On-Ramp Program

Under this program, financially vulnerable borrowers who miss payments will not be reported as delinquent or referred to debt collection agencies. However, interest on the student loans will continue to accrue.

A newly announced income-driven repayment (IDR) plan, known as the Saving on a Valuable Education (SAVE) plan, is designed to potentially bring borrowers’ monthly payments down to zero, cut payments by half or provide savings for those who can make payments. The plan is set to be launched this summer before the repayment pause ends.

Unanticipated Consequences of Loan Pause

However, many student loan borrowers, expecting widespread loan forgiveness, may have over-spent during the pause. According to a survey by, three quarters of borrowers believed that they would receive relief under Biden’s student loan forgiveness plan. When the relief didn’t materialize, 45% admitted that they had spent more than they normally would have.

In the end, the temporary suspension of loan payments has resulted in a debt increase for many. A study by the National Bureau of Economic Research (NBER) confirmed that many borrowers substituted the paused public debt with increased private debt. Consequently, household debt rose by roughly $1,200 or 3%, with these borrowers owing an additional $1,800 in other forms of debt.

As the student loan crisis unfolds, private student loan borrowers may consider refinancing to lower monthly payments and ease their financial burden.

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Dr. Paul Etienne is a financial and business consultant in Orlando, FL. Paul holds a Bachelor of Science degree, an MBA and a Doctorate in Business Administration with a concentration in Finance. He has worked for large, well-known financial firms throughout his career. Paul and his wife Vanessa share their home inCentral Florida with one extraordinary daughter named Delaney and a wonderful son named Vansley. Paul brings his longstanding experience and vast knowledge of the financial sector to his audience through his book, podcast, training courses and blogs, in which he aims to help as many people as possible with a wide variety of financial advice. He also blogs regularly on www.madbu.comon subjects ranging from personal finance, debt, budgeting, real estate investing, mortgages and retirement and more. In his free time, Paul likes to play the guitar and code, investing in real estate and helping others to become more aware of their finances. He is a lifelong student of all things and is always learning about new ideas.The future, as far as Dr. Paul is concerned, will see him helping more and more people to learn about managing their personal finance and assets, so that they can remain financially secure with the help oh his book and his budgeting app MadbuMax.