Although the pandemic introduced some new anxieties, tens of millions of people had at least one less: They weren’t on the hook for a costly federal student loan bill each month.
This month marks the end of that 3-year-long collective sigh of relief for borrowers. Financial planning executives said the impact of that is going to be felt, and that those holding portions of the nation’s total $1.6 trillion of student loan debt have a lot to prepare for.
The student loan repayment forbearance initially went into effect in March 2020, under former President Donald Trump. The pandemic-era relief effort was extended several times, but officially expired Oct. 1, with loan interest having already started accruing as of Sept. 1.
Throughout the years of the loan pause, borrowers didn’t have to pay a collective $185 billion, according to estimates attributed to Goldman Sachs.
In the meantime … life went on, said Wells Fargo Bank‘s Emily Irwin.
“People might’ve taken on other loans, gotten married, had kids, changed jobs,” she said. “They haven’t had to think about these loans being repaid for three years. … Peoples’ lives probably adjusted for the fact that these weren’t a recurring theme in their life at that time.”
Irwin, being senior director of advice at Wells Fargo, has a whole professional life revolving around the planning out of finances. Despite that, she understands that these once-regular budgetary items for individuals have been easily forgotten.
“How many times have you purchased something major and said, ‘I’m not going to think about paying for it for at least three years?’” she said. “So, from that perspective, I think that’s really hard to readjust to.”
But, that’s exactly what people will have to do. As of a few weeks ago, statements were sent out from student loan service providers informing borrowers that their student loan bills were coming back this fall.
For some, Irwin expects that wasn’t good news. She anticipates some borrowers could fret about this being a catastrophic event for their finances.
Whether that’s the case for a borrower or not, she wouldn’t advocate sticking one’s head in the sand.
“If someone has made a lifestyle change in the past few years and for different reasons can’t financially support the minimum payments that are going to be due — now’s the time to get in front of it,” she said. “It’s time for them to start talking to loan service providers about options available with respect to different types of payment plans.”
She expects a lot of conversations centered around this with advisers, as anxious borrowers figure out the best way to set themselves up to fulfill repayment obligations without hindering their cash flow. That might involve reallocating funds, looking at discretionary spending or consolidating loans.
She’ll add, however, that with that latter option — the consolidation of multiple public loans into one private loan for struggling borrowers — there are downsides that have to be considered. That might involve less-favorable interest rates or losing access to fringe benefits, such as some student loan forgiveness programs.
“There’s also been some changes during the loan pause,” Irwin said. “So, even if someone does have the finances to make these payments, you want to make sure your ducks are in a row and that you’re not missing out on anything.”
For one thing, a new income-driven repayment agreement, referred to as Saving on a Valuable Education plan, was introduced by President Joe Biden. Borrowers’ student loan servicing company might have also changed, as several companies, including major loan servicer Navient, stopped servicing federal student loans.
Outside of the impact the return of federal student loan payments have on individual bank accounts, experts said it’ll be important to note over the coming months how much the addition of these monthly bills — high dollar figures for some borrowers — figures into talk of a recession.
Irwin will be looking for evidence of that in some of the typical seasonal benchmarks of the economy’s health.
“This is coinciding with the end-of-the-year holiday spending,” she said. “So, I believe there’s going to be impacts on consumer spending. But that’s all still to be determined.”