Concerns about the impact of individuals having to start making their student loan payments again on the economy are overblown, according to a report released by researchers from the Federal Reserve Board of New York. This is good news for companies in the accounts receivable management space who were concerned that the resumption of student loan debt payments would reduce the amount of money that consumers had to repay other debts.
Consumers who are now repaying their student loans after a moratorium that lasted more than three years are expected to cut their spending by about $56 per month to accommodate the new payments, according to the research. When multiplying that about by the 28 million individuals who have federal student loans, the total works out to about $1.6 billion, which may sound like a lot, but it’s actually a drop in the ocean that is the U.S. economy.
Changes that have been announced by the Department of Education — adapting the rules for income-driven repayment plans, for example — along with savings that individuals have accrued through the years will help offset the increased burden associated with having to make student loan payments again, according to the researchers. Nearly 80% of individuals who were not in a repayment plan prior to the pandemic have stated their intent to enroll in an income-driven repayment plan, according to the report.
Individuals were given plenty of warning about the resumption of payments, which provided them with time to adjust their spending in advance, which, when coupled with those who will be enrolling in income-driven repayment plans and those who had money in their savings accounts, covers a lot of the ground associated with student loan payments.
When asked about the likelihood of missing a student loan payment in the next three months, the average probability was 23%. Females were twice as likely to indicate they will miss a payment than males and those with lower incomes were more likely to expect to miss a payment than those with incomes above $60,000.
