Households already squeezed by inflation could soon face another financial blow: the resumption of student loan payments.
Federal student debt payments were first frozen in March 2020 as part of a broad stimulus effort meant to protect Americans from the worst of the pandemic economic slump. Even as the economy quickly recovered, leading to the strongest labor market in decades, the freeze was extended multiple times.
Now, the latest forbearance period is set to end Aug. 31 as prices surge for gas, groceries and rent, and fears grow that a recession is around the corner.
“People just don't have enough money,” said Thomas Gokey, co-founder of the Debt Collective, an advocacy group for those facing debt. “If they restart payments, whether it's in August, whether it's after the midterms, there will be mass defaults because people simply cannot pay.”
For Maria Gorman in Long Island, New York, paying student loan bills alongside rent and groceries is going to be a challenge. The 26-year-old just graduated from law school and starts a job as a public defender in New York City this September. That’s also when she’ll have to start paying back $145,000 in federal student debt, or roughly $500 a month, on a salary of about $70,000 a year.
Although she’s thankful for the forbearance period — which she estimates has saved her thousands of dollars in interest — Gorman is now scrambling to prepare for the loan payments. She’s currently living in her parents’ basement and plans to sell her car for extra money.
“I didn't realize so much of my salary would be going to loans that I needed for my education,” she said. “I’m going to end up eating a lot of ramen and not being able to do anything for fun.”
Higher Costs Everywhere
Surging rent prices across the country are pinching the already-tight budgets of many who have student loans. In Manhattan, median apartment rents just hit $4,000 for the first time ever, and one-bedroom rents nationwide rose nearly 12% in June from a year earlier, according to Zumper.
Meanwhile, gas prices are close to $5 per gallon on average, and food costs rose 10% year-over-year in May, the latest consumer price index report showed. That’s worrisome for Alex Raj, who didn’t finish college but has about $10,000 in federal student loans, which will cost him $190 a month.
“At some point we all have to start paying it back and that will obviously hurt,” said the 24-year-old who lives in Sacramento, California, and works for a security agency. “Things just don't cost what they used to.”