Will Student Loan Repayment Start the Recession?
The US government is set to resume student loan repayments in October 2023, after a two-year pause due to the COVID-19 pandemic. The resumption of payments is expected to have a significant impact on the US economy, with some economists warning that it could even be the catalyst for a recession.
There are a number of reasons why student loan repayment could lead to a recession. First, student loan debt is a major burden on many Americans. According to the Federal Reserve Bank of New York, the average student loan debt for borrowers under the age of 30 is over $37,000. This debt burden can make it difficult for borrowers to afford to buy a home, start a business, or save for retirement.
Second, the resumption of student loan payments will come at a time when the US economy is facing a number of other challenges, including high inflation, rising interest rates, and the ongoing war in Ukraine. These challenges are already putting pressure on consumers and businesses, and the resumption of student loan payments could exacerbate these pressures.
Third, the resumption of student loan payments could lead to a decline in consumer spending. Consumer spending is the largest driver of the US economy, and a decline in spending could lead to a recession.
However, there are also some reasons to believe that student loan repayment may not lead to a recession. First, the economy is currently in a strong position, with low unemployment and rising wages. This suggests that the economy may be able to absorb the impact of the resumption of student loan payments.
Second, the government has taken some steps to help borrowers prepare for the resumption of payments. For example, the government has extended the repayment period for some borrowers and has offered new income-driven repayment plans. These measures could help to reduce the burden of student loan debt on borrowers.
Overall, it is difficult to say for sure whether or not student loan repayment will be the catalyst for a recession. There are a number of factors that could both positively and negatively impact the economy in the coming months. However, investors and policymakers should be aware of the potential risks posed by the resumption of student loan payments.
What can borrowers do to prepare for the resumption of payments?
If you have student loan debt, there are a number of things you can do to prepare for the resumption of payments:
Review your loan balance and interest rate. This will help you to understand how much you owe and how much you will need to pay each month.
Consider refinancing your loans. If you have good credit, you may be able to refinance your loans to a lower interest rate. This could save you money on your monthly payments.
Sign up for an income-driven repayment plan. Income-driven repayment plans cap your monthly payments at a percentage of your discretionary income. This can make your payments more affordable, especially if you have a low income.
Create a budget and stick to it. This will help you to make sure that you have enough money to make your student loan payments each month.
If you are struggling to make your student loan payments, there are a number of resources available to help you. You can contact your loan servicer to discuss your options, or you can seek help from a credit counselor.
