It’s another quirk of the pandemic economy: student loan bills that are higher than mortgage payments.
That’s the situation facing some US borrowers who took advantage of the three-year pause on student loan payments to purchase homes, leveraging historically low mortgage rates to crack into the real estate market. Now, with the education bills set to restart next month, they’ll pay more each month for their education debt than their housing costs.
Fikret Sabic, 28-year-old physical therapist in Kentucky, will be on the hook for payments of $1,130 a month for his student loans, almost $300 more than he and his wife Emina pay for their mortgage. In total, he has about $94,000 in debt from his undergraduate degree in biology and his doctorate of physical therapy, both from Western Kentucky University.
The pandemic pause on student loan payments helped the couple buy a home in 2020 for $207,000 with a 3.25% interest rate, less than half what borrowing costs are now. Sabic knew debt payments would restart at some point, and he and Emina have been preparing their budget, but they still expect it to be difficult.
“It really does slow down a lot of your life decisions when you have such a big burden monthly to have to pay,” Sabic said.
Cash Crunch
The return of student loan payments comes at a tricky time, with millions of Americans expected to cut back on their spending to cover the bills. Experts have predicted a wave of delinquencies on credit card and auto loans as student debt payments further stretch household budgets.
While the average student loan payment before the pandemic was about $400, one in five borrowers will be paying more than $500 a month. Almost 7% of debt holders face bills of $1,000 or more. At the same time, about 23.7 million homes in the US have a mortgage payment of $1,000 or less, according to Black Knight.
Chase Keibler, a 32-year-old attorney in Lexington, South Carolina, and his wife Laura will soon be paying about $2,100 a month for their student loans, compared to just $1,850 for their mortgage. Chase has about $75,000 in federal debt left from his undergraduate degree in English from Indiana University of Pennsylvania and his law degree from the University of South Carolina. Laura, meanwhile, is working to pay down about $70,000 worth of loans, a mixture of public and private debt.
The couple was able to buy a home in July 2020 — for $346,000 with a 3.2% mortgage rate — but the addition of student loan payments feels “daunting,” especially with two kids under two and Laura staying at home with them.
“I expected to have law school debt, but it’s an incredible amount of money that is guaranteed out every month for the foreseeable future,” he said.
Expensive Cities
It’s not just homeowners who will grapple with student loan payments that eclipse their housing costs. Molly McGhee, a 28-year-old novelist in New York, faces a student loan bill that’s more than her rent.
The 28-year-old novelist has $120,000 in public and private loans from her undergrad degree at Champlain College in Vermont and her MFA in writing at Columbia, where she also works as an adjunct professor. She will soon pay $1,270 a month on her debt. That’s more than her $1,100 share of the $2,500 rent for an apartment in Crown Heights, Brooklyn, where she lives with her partner.
McGhee said she needed to get an MFA to be taken seriously in her field, but her paychecks haven’t made up for that investment. She and her partner are putting off goals like getting married because of the loans.
“I’m finding myself at a juncture where I’m really considering having to move back home to Tennessee and get an office job somewhere where the cost of living is way less,” she said.
This article was provided by Bloomberg News.