Federal student loan payments will resume at the end of August after a nearly three-year pause due to the COVID-19 pandemic.
According to the Department of Education, federal student borrowers will have to start paying back their loans at the end of August under the debt limit agreement reached and passed by Congress on June 1.
One of President Biden’s top campaign promises, the student loan forgiveness plan, would have forgiven up to $10,000 for students whose parents earned less than $125,000 a year and up to $20,000 for students or graduates from low-income families who receive federal financial aid.
However, a lawsuit was filed against the program, and it is currently awaiting a decision from the Supreme Court.
Initially, President Joe Biden said he would suspend loan payments until the Supreme Court’s ruling on the legality of student loan forgiveness, expected as early as late June. However, his provision was removed from the debt ceiling deal.
As a result, 44 million student borrowers in the U.S. will now have to make monthly loan payments ranging from tens to hundreds of dollars starting in August 2023, adding to the number of young people facing financial hardship.
In fact, the Consumer Financial Protection Bureau (CFPB) estimates that more than 20 percent of all student borrowers will be unable to pay their loans immediately.
In response, the Department of Education is considering options such as waiving late fees for a while for those who cannot make their monthly payments.
“We are already sending out notices to student borrowers to resume payments,” said an Education Department official.
“And while we cannot extend loan forbearance periods under the debt ceiling agreement, we are considering waiving other penalties.”
Students who attended college during the pandemic or graduated during it took out an average of $10,000 to $20,000 in additional loans due to soaring inflation, according to Education Department statistics.
In addition, after graduation, they faced higher monthly payments due to inflation-adjusted bank interest rates.
These statistics show that nearly 7 million of all federal student borrowers are under the age of 25, and their average loan balance is less than $14,000.
According to the Federal Reserve Bank of New York, the average balance of borrowers who defaulted in 2021 was between $15,300 and less than $40,000.
“Resuming student loan payment would result in an unprecedented number of defaults by recent graduates, which would ultimately hurt American consumers,” the nonprofit Student Debt Crisis Center said in a recent statement.
In order to pay off their loans, they would have to cut back on travel, dining, and other expenses, which in turn would lead to a further contraction in the economy.
BY NICOLE CHANG [support@koreadaily.com]
