Millions of Americans must start repaying their federal student loans again in October, with monthly payments averaging hundreds of dollars a month. To get ready, borrowers are cutting expenses, taking on additional work, and looking for options to reduce their monthly payments, per the AP. Megan McClelland, 38, said she's started asking for October shifts with a catering company and a winery to help supplement her income. McClelland's main job is as a counselor at Petaluma High School in California. During the more than three years payments were suspended because of the pandemic, she paid off her car loan and was able to save for the first time. She'll put the $235 she was spending on her car payment toward her student loan, but that still leaves another $270 or so she'll have to reallocate or earn.
"It had been a huge relief the past few years to not have that financial burden," she said. "In the next months, I'm looking to see where I can scale back in my budget. Probably less going out to eat, and more picking up side gigs." The Supreme Court in July rejected a plan by President Biden's administration to wipe away $400 billion in student loan debt. Some people have applied for adjustments to payments based on both the new SAVE plan and prior income-driven repayment options. The SAVE, or "Saving on a Valuable Education," plan allows borrowers to make lower payments based on a percentage of their discretionary income.
Not yet clear is how millions of people suddenly having less discretionary income might affect the economy. On an earnings call last month, the chief financial officer of Target said that student loan payments restarting will "put additional pressure on the already strained budgets of tens of millions of households," a sentiment echoed by the financial chiefs of Best Buy and other retailers. In the Federal Reserve's latest survey of economic conditions, one restaurant-industry observer in Boston said workers are taking on more hours, and, for the first time, credit card debt has topped $1 trillion. According to credit bureau TransUnion, more than half of student loan holders added credit card debt during the pandemic. Meanwhile, consumer savings, which peaked in 2021, are on the decline.
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The Public Service Loan Forgiveness program is one of several avenues for relief still available to many with student debt. After Biden's original plan for forgiveness was struck down by the Supreme Court in July, the White House said it will use the Higher Education Act to bring cancellation to more borrowers. It's currently undergoing a process known as "negotiated rule-making" to determine the details. Other sources for relief for borrowers include: false certification, borrower defense, closed school, total/permanent disability discharges, and alternate repayment programs like income-driven repayment. McClelland said she now spends a lot of time counseling high school students on how to avoid taking on burdensome loans. "I had no financial guidance when I was younger, from my own parents or from school," she said. "I didn't ever understand the long-term impact." More here.
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