After a three-and-a-half year hiatus due to the pandemic, US federal student loans begin accruing interest again on Friday, with repayments poised to reduce the monthly take-home pay of millions of Americans by hundreds, if not thousands, of dollars.
Joe Biden ran for president on a promise to eliminate at least $10,000 in student loan debt for millions of Americans, and after taking office, he announced a $400 billion initiative to accomplish precisely that.
However, on June 30, the United States Supreme Court concluded that his administration had exceeded its power and invalidated the student loan forgiveness program.
As a result, interest on outstanding loans is back, with repayments due to restart from October.
“It was disappointing, but not surprising,” Tiffanie Brown, a 43-year-old from Baltimore County, Maryland, with more than $100,000 in outstanding student loans, told AFP.
‘Anxious’ borrowers
According to Department of Education figures, more than 46 million persons in the United States have outstanding student loans worth more than $1.6 trillion.
According to an AFP analysis of Department of Education data, Maryland individuals with student loan debt owing more than $43,000 on average, the second-highest total in the US after the District of Columbia (DC).
However, unlike its wealthier neighbor, Maryland’s per capita personal income was lower than that of nine other states and the District of Columbia last year, according to Department of Commerce data, complicating loan repayment.
“We’re seeing that people are starting to get anxious about this,” Dr. Tisa Silver Canady, a financial wellness advocate and founder of the Maryland Center for Collegiate Wellness, told AFP, referring to the return of loan repayments.
Some Americans, like Tiffanie Brown, have been able to successfully restructure their student loans.
This has allowed them to reduce — and even halt — their monthly student loan repayments, depending on their income.
But their loan balance remains, and often increases in size as it accumulates interest.
After more than three years, the return of student loan repayments could prove challenging for consumers who took on new financial obligations during the pandemic, according to Silver Canady.
“People who had that disposable income were able to do things like perhaps buy a home, or buy a car,” she said.
“And now, I’m just concerned that for some people, it’s going to be too much,” she added, referring to the monthly repayments due on loans and mortgages.
Alternative solutions
Since the Supreme Court judgment in June, Biden has officially launched another initiative known as the Saving on a Valuable Education (SAVE) plan, which he describes as “the most affordable student loan plan ever.”
Some borrowers may see their costs reduced from 10% to 5% of their monthly discretionary income under this new income-driven repayment plan.
Borrowers with original loan sums of less than $20,000 would likewise have their loan balances canceled after a decade.
While not as quick as Biden’s now-cancelled loan forgiveness plan, it would significantly reduce the cost of repayment for those who qualify over time.
Some students who choose jobs in public service or the non-profit sector may have their student loans canceled entirely under current arrangements.
However, the standards are tough and can vary greatly depending on whatever administration is in power.
“It can change from year to year, you know, administration to administration,” said Brown, who is hopeful she will eventually become eligible for some form of student loan forgiveness.
“You just never know with the government,” she added.