SPRINGFIELD, Mass. (WWLP) – Student loans are back! Repayments start up again this week, which will have a major effect on the U.S. Economy as a whole.
People all over the country are re-considering their finances Monday morning, with the re-introduction of what is likely one of their largest monthly bills.
About one out of every eight Americans owes money on student loans and hasn’t had to make those payments for three years now. The Biden administration tried to cancel up to $20,000 in student debt for eligible borrowers, however, the program was struck down by the Supreme Court in June.
Now, more than 40 million people must face reality amid inflation and rising interest rates, collectively owing around $1.6 trillion. Economists say the impact on the larger economy is uncertain, but think retailers and lenders will take a hit as consumers re-prioritize their spending, as between $7 and $8 billion is re-allocated across the country. The typical payment is around $350 but 10 percent of borrowers are on the hook for more than $700 a month.
The Biden administration is strongly encouraging everyone to re-structure their debt using new income-driven repayment plans, which could bring your monthly payment way down while they pursue other forgiveness options.
First things first, log back into your lender’s website and make sure your information is all correct. You may have moved, switched banks, gotten a new card number, and all that needs to be updated. Your auto-payment from three years ago will not automatically restart.
Then visit Student Aid.Gov and read up on these plans. There are four types, the SAV, PAYE, ICR, and IBR plans, each with its own qualifications and features. All of them calculate your new monthly payment based on your income and promise to keep that payment at 10 or 15 percent of your discretionary income while stretching your terms to 20 or 25 years.
Direct subsidized and unsubsidized federal loans are eligible for each of those plans. They will lower monthly payments for nearly all borrowers but do extend the time you will be paying, which raises a higher interest bill.