Wednesday, April 24, 2024

Student loan payments set to resume: Why Americans are still burdened

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As student loan payments are set to resume for roughly 44 million Americans in October, many are dealing with stress, regret, and financial tensions.According to a Bankrate survey, approximately 24% of Americans with student loan debt borrow say borrowing too much for their education is their biggest regret, with 57% saying that the stress levels due to this regret has increased over the years.The ongoing student loan payments are adding to financial challenges for borrowers, compounded by inflation and high interest rates. The average student loan balance stands at approximately $37,330 with an interest rate of 6.36%, leading to monthly payments averaging between $200 and $300 pre- pandemic.

The Consumer Financial Protection Bureau estimates that about 1 in 5 borrowers may face difficulties when payments resume. Economists argue that while the impact of these payments on the broader economy may not be significant, borrowers will collectively face around $70 billion in annual costs.

This could potentially lead to a 0.4% drag on consumption over the next year, with most of the effect expected around the fourth quarter of 2023. While individuals with bachelor’s degrees or higher tend to have lower unemployment rates and higher lifetime earnings, the benefits don’t necessarily translate into financial security.

Student loan debt often leads to delayed financial milestones, including saving for emergencies (27%), retirement (26%), paying off credit card debt (24%), and buying a house (23%), according to a Bankrate survey.

Despite these challenges, a majority of student loan borrowers who graduated with their degree (59%) believe that pursuing education has supported their incomes and careers.

Still, over two-thirds of borrowers (69%) express a desire to change something, such as applying for more scholarships (23%), working more during school (20%), attending a cheaper school (17%), or going to community college (15%).

The rising cost of tuition has forced many Americans to take on student debt, with fees increasing significantly over the years. While a college degree often leads to better employment prospects, it can also burden graduates with debt, affecting their ability to save and invest for the future.

To direct the upcoming resumption of payments, experts recommend borrowers engage in financial housekeeping, update their information, determine their due dates, and consider enrolling in auto-pay to reduce interest rates.

They also encourage borrowers to explore different payment plans based on income and to be aware of loan forgiveness options. Additionally, experts caution against prioritizing rapid debt repayment at the expense of other financial goals, such as saving for emergencies or retirement.

Balancing student loan payments with long-term financial planning is essential to ensuring borrowers don’t miss out on opportunities to grow their wealth over time.Student loan payments set to resume: Why Americans are still burdened

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