The pause of student loan payments is over. Borrowers are now compelled to start resuming payments after a three-year pause. In the meantime, many of these same borrowers purchased homes, leveraging historically low mortgage rates to crack into the real estate market. Now, with the education bills set to restart next month, they will pay more each month for their education debt than their housing costs, according to Financial Advisor.
According to a recent report by the Federal Reserve Bank of New York, the average monthly student loan payment for borrowers with outstanding debt is $503 (over a 10-year repayment), according to the Education Data Initiative. The average monthly mortgage payment for borrowers with outstanding debt is $2,823 (for a 30-year fixed mortgage) according to Bankrate. This means that for many borrowers, their monthly student loan bill is higher than their monthly mortgage payment.
There are a few reasons why this is the case. First, student loan debt has been rising steadily in recent years. In 2020, the total amount of outstanding student loan debt in the United States surpassed $1.6 trillion. This is more than the total amount of credit card debt and auto loan debt combined.
Second, student loan interest rates are typically higher than mortgage interest rates. The average interest rate on a federal student loan is 5.79%. The average interest rate on a 30-year fixed-rate mortgage is 5.27%. This means that even if you have a smaller student loan balance, your monthly payments could still be higher than your monthly mortgage payments.
Finally, many borrowers have longer repayment terms for their student loans. The standard repayment term for federal student loans is 10 years. However, many borrowers opt for longer repayment terms, such as 20 or 30 years. This can make their monthly payments lower, but it will also mean that you pay more interest over the life of the loan.
The repayment of student loans will surely have an impact on these borrowers. First, this might reduce their disposable income. Borrowers who resume making student loan payments will have less disposable income to spend on other things, such as housing, transportation, and entertainment. This could lead to some borrowers having to make difficult financial choices.
Second, it will delay their financial goals. Borrowers who are having trouble making their student loan payments may have to delay financial goals, such as buying a house or saving for retirement. This could have a long-term impact on their financial well-being. And logically, it would lead to an increased stress because the financial burden of student loan debt can be a major source of stress for borrowers. The resumption of payments could add to this stress, making it difficult to focus on other aspects of life.
In addition to these individual impacts, the resumption of student loan payments could also have a broader impact on the economy. For example, it could lead to reduced consumer spending because if borrowers have less disposable income, they may be less likely to spend money on goods and services. This could have a negative impact on businesses and the overall economy. It will also increase defaults because if borrowers are unable to make their student loan payments, they may default on their loans. This could lead to financial hardship for borrowers and could also have a negative impact on the economy.
Comments