Federal student loan payments are about to resume, and they will have a disastrous impact on borrowers’ finances.
For the first time in more than three years, interest accruals start up again on September 1 and payments are due in October.
However, according to a recent Credit Karma poll, more than half of borrowers (56%) believe that when the extended forbearance expires, they would have to decide between paying for necessities like rent and groceries or making their loan payment.
The results confirm long-held fears held by the Biden administration and many experts. Resuming student loan payments is expected to upset millions of households that had found some financial comfort during the previous three years, even though the worst of the pandemic is behind us and inflation is down from its dramatic increase last year.
According to Credit Karma, the most frequent adjustment made by borrowers to make student loan payments is cutting back on unnecessary expenditures. However, you can only cut back on so many expenses.
Here are some strategies for stretching a limited budget as well as how the borrowers hope to make ends meet.
Unsurprisingly, according to Credit Karma, 68% of borrowers with family incomes under $50,000 believe they will have to decide between making loan payments on time and paying for basics.
However, many high earners anticipate difficulty as well; 45% of borrowers with household incomes of $100,000 or more think they’ll be need to make those difficult decisions.
The problem can also involve other loans. According to Credit Karma, more than 50% of borrowers report having difficulty paying off credit card debt, auto loans, mortgages, or other payments.
Applying for an income-driven repayment plan is one choice that could be very beneficial to borrowers with lesser incomes. For instance, families of three or more earning $50,000 or less may be eligible for a $0 monthly payment under the new Saving on a Valuable Education IDR plan.
However, according to Credit Karma, only 34% of borrowers said they will apply for an IDR plan to cut their monthly payments.