Millions of students graduated during the pandemic with student debt. They have yet to make a single payment.
The moratorium on federal student loan payments, which began three years ago this month, has given recent graduates the financial freedom to pay down debt, boost their credit scores and simply cover everyday expenses at a time of high inflation and economic uncertainty. All that is set to change soon, with payments scheduled to resume later this year.
The restart is likely to be a jolt for nearly everyone with federal student loans (private loans weren’t part of the pause), but perhaps no cohort will feel it quite like Generation Freeze, which has never had to budget for it. That’s likely to slow consumer spending and hurt the economy, according to a recent report from financial services firm Jefferies.
“The loans being paused was great because I paid the minimum for my private loans and that was it,” said Alix Chronister, a 24-year-old in Kansas City, Missouri. “If I had had to pay on my federal loans, my financial situation would have been a lot more stressful.”
End of an Era
The first 60-day repayment pause was issued by President Donald Trump on March 20, 2020, when the onset of the pandemic sent the economy into a tailspin. Three years, multiple extensions and one presidential administration later, the freeze is still in place and about 11 million people have since completed undergraduate degrees. Of those, an estimated 70% leave college with student debt.
But the freeze era is drawing to a close. President Joe Biden said in late November that payments will resume 60 days after the Supreme Court rules on his one-time forgiveness program or June 30, whichever comes first. That puts the restart date at no later than Aug. 29, and the first monthly installment would be due by the end of September.
For Chronister, that means a big financial adjustment is coming. She graduated in 2021 with $38,000 in private and federal loans and currently works as a chemist in a research facility. She has prioritized paying off the private loans, which make up $8,000 of her total balance.
The freeze was particularly useful because she was making $15 an hour at her first post-collegiate job, amounting to about $30,000 a year.
She’s eligible for $20,000 in forgiveness if the Supreme Court rules in favor of Biden’s plan — but she’s not holding her breath.
“I think I’m really lucky to have had the pause, and it definitely benefited me and people who graduated around the same time,” she said. “We’ve had a chance to get our careers situated before worrying about paying.”
The average monthly payment before the pandemic pause was $393, according to the Federal Reserve. About 20 million borrowers were actively paying down their debt, while others were in default or had their payments deferred due to hardship or forbearance.
Depending on a borrower’s personal financial situation, the return of student loan bills won’t be like flicking an immediate “on” switch. Travis Hornsby, founder of financial service website Student Loan Planner, can see a case where some borrowers might not be expected to pay for another year or two based on their income. New rules for income-driven repayment plans would also widen the net for those who may qualify for a $0 monthly bill, and cap payments at no more than 5% of discretionary income for others.
“Compared to what payments used to be, a lot of people are going to be very much eased into repayment,” said Hornsby. That would help not only fresh college grads, but single parents and others who were previously at risk of default. “The freeze is sort of being thawed.”
Looming Bills
The freeze means many recent graduates have never had to factor federal student loan repayments into their monthly budgets, a helpful absence as prices rise for everything from eggs to rent. In a recent survey by personal-finance company Credit Karma , 26% of borrowers said they hadn’t saved any money during the freeze because they were prioritizing everyday expenses. Almost 70% said their financial situation was stagnant or declined in 2022.
For Madison Sasser in Tampa, Florida, the freeze gave her time to figure out her career trajectory without having to worry about an additional monthly bill. The 24-year-old graduated from the University of South Florida in December 2020 with $15,000 in student debt.
She initially wanted to go to law school but decided it was too expensive. Now, she’s working on building a career as a writer while waiting tables at a restaurant during the day, and makes about $38,000 a year.
The return of monthly payments is going to significantly strain her budget, she said, especially due to the high rents in Tampa.
The average starting salary for a member of the class of 2021 is $55,911, according to a July 2022 analysis by the National Association of Colleges and Employers. For young people who live in big cities and lack the financial and career flexibility to move to places with lower costs of living, those early salaries may not stretch very far.
Matthew Sánchez, a 23-year-old compliance officer who lives in Long Island, New York, says having to repay his loans will be stressful.
“For me personally, I can probably make do and adjust,” he said, though he expects he’ll have to delay a move to Maryland, which he’s trying to plan because it’s more affordable.
He’s bracing for a monthly payment of $300 on $27,000 in federal loans. He knows he’s on the luckier side: “I’m always thinking about how this affects my demographic, broadly speaking. I can see the frustration people have.”
This article was provided by Bloomberg News.