Many Borrowers Aren’t Ready to Resume Student-Loan Payments
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Here's your money briefing for Thursday, March 16th. I'm J.R. Whelan for The Wall Street Journal. The resumption of student loan repayments is back on the calendar. But like many Americans, student loan borrowers' personal finances are already being stretched. And for some, adding another monthly expense couldn't come at a worse time.
It raises concerns that these younger Americans are less likely to have the savings to tap when their finances are stretched. And it raises the likelihood that they could default.
Coming up, we'll talk to Wall Street Journal reporter Gabe Rubin. That's after the break.
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After several extensions, student loan payments are expected to resume later this year. But some borrowers already struggling with their personal finances could find it difficult to make ends meet. Wall Street Journal reporter Gabe Rubin joins us to discuss.
When will student-loan repayments resume and why does the timing matter?
Hey, Gabe, thank you very much for being here.
Pleasure to be with you.
So, Gabe, catch us up for a moment. Where do things stand with the litigation surrounding President Biden's student loan forgiveness proposal?
So a couple of weeks ago, the Supreme Court heard arguments in the case, and the decision is expected by the end of the court's term late in June. So in the months between now and then, we're not really likely to know anything from the courts or get any signals that they're going to rule one way or another.
All right. So when the Supreme Court decides, what happens then?
So they will either rule that President Biden's plan can go forward or they will strike it down as unconstitutional. So payments would restart about 60 days after the court issues its ruling or the Biden administration implements the program. And just a reminder, that program would cancel up to $20,000 in debt for people who make under a certain income threshold and comply with certain other requirements. So either way, around 60 days after the Supreme Court wraps up the case, people with remaining student loans will have to start making payments on those loans, which they haven't done or haven't been required to do since March 2020. And the difference would be that some people would have their entire loan balance wiped out or would have significantly less money to pay if the program is allowed to go through as opposed to if the Supreme Court strikes it down.
All right. So let's talk about what this means with regard to borrowers' personal finances. People of nearly all ages have some kind of debt they're paying off. But why has the impact of potentially resuming payments among younger borrowers raised concerns?
Yeah, so these are households that are really getting squeezed by both high inflation and rising interest rates. And we see the shift in credit conditions being starkest among these younger consumers who are less likely to have significant savings, are more likely to have student debt. And borrowers in their 20s and 30s reached 90 days or more delinquency on credit card debts and auto loans at a higher rate in the fourth quarter of 2022 than they were before the pandemic.
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