Student loan payments are set to resume this October, giving Americans yet another monthly bill to stress about, and the impact is expected to set in early.
“It’s going to quickly reverse all the progress that was made during the repayment pause, especially for those who took out new debt in mortgages or auto loans where they had the financial room because they weren’t paying their student loans,” Laura Beamer, who researches higher education finance at the Jain Family Institute, told the New York Times.
Monthly student loan bills before the pandemic came in between $200 and $299, a serious chunk of change that borrowers have not had to budget around.
A report by the Federal Reserve found that about 1 in 5 student loan borrowers have at least two risk factors that suggest they could struggle to make their payments, such as being delinquent before the pandemic or having multiple student loan servicers.
The timing bodes ill for potential homebuyers who are already struggling to afford a home in the high-price, high-rate environment.
A poll by NAR found that more than half of non-homeowners say their student loan debt has delayed their ability to buy a home.
Of 1,995 respondents, 51% said their student loan debt delayed them from buying a home, with 47% saying it prevents them from saving for a down payment. For millennials, that number jumps to 60%.
Americans with high student debt burdens are also more likely to think twice about buying cars, continuing their education, taking vacations, or starting small businesses.
And even those who want to push forward into homeownership may find their debt-to-income ratio blocking their way, as well as any missed payments or credit score impact.
Experts recommend debt holders pay off as much high-interest debt as possible before starting the homebuying process.
High-interest debt is classified as any rate above 6%.
“Reducing high-interest debt will improve your financial health and increase your chances of getting approved for a mortgage,” Seth Jacobs, mortgage broker and founder of Maine USDA Home Loans, told Yahoo.
He also suggests borrowers take a close look at how much cash they can actually spare every month, noting that stretching your budget too thin might counteract the financial benefits of owning a home.
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