Jul 5, 2023
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When President Joe Biden and House Speaker Kevin McCarthy came to terms on lifting the country’s debt ceiling, they also put tens of millions of Americans back on the hook for their own debt.
Federal student loans are due to start accruing interest again starting Sept. 1, following a three-year pause that began during the pandemic. Repayments will start in October.
With around 45 million Americans holding student debt owing an average of $393 per month, U.S. consumption could be impacted by a whopping $18 billion each month, according to investment banking and capital markets firm Jefferies.
The firm believes many households will scale back spending in order to contend with this “student loan cliff,” which could potentially impact the economy as well.
Borrowers may not be prepared
The debt deal doesn’t touch upon Biden’s hotly contested plan for student loan forgiveness — the fate of which is in the hands of the Supreme Court, with a decision expected soon.
Many borrowers are counting on a favorable outcome.
“Senior Biden Administration officials have said, repeatedly, resuming loan payments without first canceling student debt will result in a catastrophic wave of unnecessary borrower distress and default,” said Persis Yu — Student Borrower Protection Center deputy executive director and managing counsel — in a statement on May 28.
High inflation and rising interest rates are already forcing many Americans to live paycheck to paycheck and rely more and more on their credit cards. In fact, U.S. household debt hit a record $17 trillion in the first quarter of the year.
Once student loan relief comes to an end, these stressed-out borrowers may have to pull back on purchases so they can afford their monthly payments — or add to their already large pile of debt.
Borrowers with federal student loans do have a big advantage. Not only have they reaped the benefits of the freeze, but federal loans will also continue to offer discounted rates and certain consumer protections, like access to income-driven repayment plans and loan forgiveness options.
By contrast, borrowers who have private student loans through a bank or other lender miss out on all of those perks.
That doesn’t mean they don’t have any options, however. One money-saving tactic borrowers can explore is refinancing: switching out their loan for a better one with another private lender.
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While borrowers with federal student loans are unlikely to find better interest rates or protections in the private market right now, borrowers who already have private loans should consider looking around for a better deal.
To track down a loan with lower payments or lower interest, you can use services like Credible’s online marketplace to explore a range of available refi options.
With Credible, you can browse up to 9 vetted lenders and find the best refinancing rate – all without affecting your credit score. Depending on your circumstances, a student refinancing loan through Credible could help pay off your debt faster.
You can find interest rates as low as 5.08% fixed APR with autopay, and 5.03% Var. APR with autopay.
Just answer a few brief questions and you’ll receive personalized student loan refinancing options from multiple lenders within minutes.
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The Moneywise Editorial Team is a group of passionate financial experts, seasoned journalists, and content creators who are deeply committed to providing unbiased, relevant, and accurate financial information. With years of combined industry experience, our team is dedicated to maintaining the highest journalistic standards and delivering informative and engaging content. From personal finance and investing to retirement planning and business finance, we cover a broad range of topics to suit the financial needs of our diverse readership. You can trust the Moneywise Editorial Team to empower you with the knowledge and tools necessary to make wise financial decisions.
