As the student loan forbearance program comes to an end, Americans are terrified that resuming payments will force them into greater debt.
That’s according to a new survey of student loan borrowers by digital personal finance company Achieve.
Student loan repayments were put on pause in March 2020 as a response to the pandemic. Payments will resume in October. Nearly half of respondents are extremely or very stressed about resuming their payments, while 28% say they will have to take on new debt to manage their personal finances.
45% of respondents paid down other expenses rather than making advance payments on their student loans during forbearance, with 27% using their extra cash for mortgage or rent payments.
More than 60% of Achieve’s respondents expect their monthly payments to be less than $250 per month, but 13% say they will owe $500 or more. New payments at those levels are likely to strain borrowers struggling in the high-inflation, high-rate environment.
“Student loan forbearances brought relief for millions during the uncertain times of the Covid-19 pandemic,” said Andrew Housser, co-founder and co-CEO of Achieve.
“But after more than three years, many consumers are now bracing for significant adjustments to their household budgets. Many will even have to delay major life plans and milestones in order to manage their student loans, existing debts, and other day-to-day expenses.”
Many Americans have already delayed big changes because of their student loan debt. Nearly one quarter (23%) said they have been unable to buy a house thanks to their payments.
Others say they’ve delayed getting married (7%) or having children (9%) as a result, two life changes that affect household formation and, therefore, homebuying. Though the share of unmarried buyers has increased significantly in the last twenty years, married couples still account for 61% of the market.
Millennials are the most impacted by debt, reporting more cautious spending and anticipation of a loan-free future than other age groups. But Gen Z is set to overtake them. Though they currently only hold 7.87% of student loan debt, Gen Z sees the largest increases per year of any group. They are expected to have the highest rate of college education.
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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