Student loan payments are restarting, impacting the economy.

Interest on Student Loan Payments Resumes: What‌ to Expect

After a ⁢three-year pause, interest on student loan payments started accruing again on Friday, and the first payments are set to come due next month. This‌ change has significant implications for consumers and the economy. Let’s take a closer look.

The Impact on ‍Borrowers

For individual borrowers, especially those already struggling to make ends meet amidst inflation and higher ⁤interest rates, ‌the resumption of student loan⁤ payments will be challenging. While experts are divided on the macroeconomic effects, Pao-Lin Tien, an economics professor at George Washington ​University,​ believes that the overall consumer demand might decrease slightly.

Goldman Sachs researchers project ​that the full resumption of payments will‌ amount to approximately $70 ⁢billion, equivalent to 0.3% of disposable personal income. They also⁣ estimate that ⁤it will reduce personal consumption expenditure growth ‍by about 0.8% in the ⁣fourth quarter of this year. Interestingly, student loan payments have already surpassed ⁤pre-pandemic levels in recent weeks. This surge could be attributed ⁣to ⁣borrowers voluntarily restarting payments early or making large one-time payments towards their ⁣loan principal.

While economists generally ⁢agree that the return ⁣of student loan ⁢payments will have a modest effect⁣ on the​ economy and consumer spending, Sarah Foster from Bankrate ⁤expresses concern for those ‍already facing financial hardships. ​Lower-income households, in particular, ‍are feeling the impact of rising prices​ and higher interest rates more acutely.

Potential Increase in Borrowing Activity

There is a possibility that⁢ the resumption of payments could lead to an overall increase in‌ borrowing activity, not just for student loans. Consumers may need to⁢ borrow more or accumulate credit card debt to sustain their spending. However, this is concerning as interest rates ⁣are now significantly higher than they were a⁤ year ‌ago. Foster notes that​ loan delinquency rates,⁣ especially among individuals aged‍ 18 to 29, are⁢ on the rise.

Tien ⁤suggests that⁢ while higher borrowing activity,⁣ such as increased credit card debt, may ⁤occur, many people might choose to scale back their ⁤discretionary spending to ⁤avoid additional financial strain.

Implications ⁤for the Housing Market

The resumption of student loan payments could have subtle implications for the housing market. Tien explains ⁣that housing demand might slightly ⁣ease as potential homebuyers will have to allocate more‌ funds towards⁣ loan payments,⁣ making it ⁤harder to afford a mortgage.

Guardrails implemented by the Biden​ administration for the next year aim to mitigate the impact on the broader⁣ economy. Late or missed payments during⁤ this⁤ period​ will not be reported to⁢ credit ⁣agencies or considered as defaults,‍ providing relief to borrowers.

Overall, while the return of student loan payments will have varying effects, the administration’s efforts to ⁣ease the transition and protect borrowers from severe consequences are expected⁢ to minimize immediate impacts on consumption.

Click here to read more ‌from the Washington Examiner.