KT Th🤡omas may have to delete the Uber Eats and Doordash apps from her phone. 

Th⛎omas is preparing to fit a $200-per-month student loan payment into her budget and luxuries♏ like food delivery are on the chopping block. Thomas has to make room because making her student loan payment will be all the more challenging amid record-high inflation. A typical twice-monthly grocery bill for her and her partner has risen to $500 from around $325 before the pandemic, and her car insurance has risen to $135 from $110.

To keep afloat, Thomas—a 25-year-old Jersey City resident and account coordinator at a PR firm—said she will have to contri𒁏bute less to her emergency fund and cut back on shopping, date nights and dining out.

Student loan experts say many borrowe♚rs like Thomas are having to analyze t😼heir finances as the Oct. 1 deadline for repayment looms. 

“Student loans have been out of sight, out of mind,” said Lindsay Clark, director of external affairs for Savi, a financial technology company that helps borrowers optimize their student loan repayment. “They've been detached from their student loans for three plus years, and now trying to think about how they're going to afford that on a monthly basis … people are really concerned.”

A Day of Reckoning Postponed

Borrowers may find that they have less room in their budgets because ﷽the cost of living has skyrocketed since they likely made their last payment in Fe♔bruary 2020. 

The consumer price index, a broad measure of how much goods and services cost, is up 18.4% as of August since the pandemic hit, and it’s even worse for basics like food and rent: Groceries are up 24% by government data, and the average rent has ballooned to $2,038 as of August, from $1,594 before the pandemic, according to Rent.com.

The situation is even worse for those with ambitions of buying a house: Between higher mortgage rates and soaring home prices, the monthly mortgage payment to buy a median-priced home (assuming a 20% down payment) has risen to $2,208, a 129% increase from February 2020.

Many borrowers may struggle to pay their student loans because of high inflation, ꧑higher interest rates for other kinds of loans, and other financial headwinds, studies have found.

More than three out of every five borrowers said they expect to miss at least one student loan payment, according to a Morning Consult survey conducted in May. In a survey by financial advice website Finder, 22% of student loan borrowers said they would be unable to pay when payments resumed, and another 39% said they would have to cut back on their lifestyle.

“Borrowers with chronic repayment challenges benefit from automatic forbearance, but our survey responses suggest that, for most of these borrowers, forbearance is simply post👍poninಌg a day of reckoning with loan payments that the respondents consider unaffordable,” the Philadelphia Fed researchers wrote.

Six million borrowers were at risk of having trouble repaying their loans, a study earlier this year by the Consumer Financial Protection Bureau found.

“People are expressing concern about the affordability of their payment,” said Betsy Mayotte, president of the Institute of Student Loan Advisors, a nonprofit group that offers free student loan advice to borrowers. “The economy is very different than it was three and a half years ago. Eggs and lettuce and rents are a lot more expensive than they were, and salaries haven't necessarily kept up with that.”

A May study by researchers at the University of Chicago found borrowers who had their loan payments paused ramped up their spending and took on more debt, potentially putting them in a worse financial situation than they were before the pause. 

Higher Pay Doesn’t Equal Easier Repayments

Some borrowers will be able to fit payments back into their budgets with little trouble. Indeed, the Department of Education received a flood of payments in August, an indication that many borrowers are w🏅illing and able to pay back ꦏtheir loans.

By some measures, typical worker pay has kept up with inflation in the hot labor market and may help some borrowers repay. Average hourly wages have risen 18.5% since February 2020, according to data from the Bureau of Labor Statistics.

However, high🔴er incomes don’t necessarily help, because they often go along with higher student🤪 loan debts incurred to get professional, high-paying jobs. 

In the Morning Consult survey, 50% of borrowers in higher-income households said they had $100,000 or more in student debt. In fact, even more high-income borrowers anticipated having trouble repaying than their low- and medium-income counterparts, with 73% of borrowers making over $100,000 saying they were likely to miss a payment.

Thomas Mulvꦆaney, a professional development manager in Jersey City took out a mix of private and federal loans to fi🗹nance his education. He graduated from college in 2011 and later went back to law school. 

His law degree enabled him to earn a six-figure salary, up from his $70,000 annual wage before—but he now faces a $1,300 per month s🌸tudent loan payment. Out of that, about $250 goes toward federal loans that will have to start being repaid in October.

Mulvaney said he’s putting off plans to move to a nicer apartment and may curtail his annual vacation. Buyi൲ng a house is out of the question for the time being. 

“When I was growing up, I felt like, ‘If I can make six figures I'll be golden. I'll be living this nice lifestyle, with a nice apartment or a nice house.’ I don't see that happening right now,” he said.

A Hit to the Economy

When required payments resume, about 22 million people will pay an average $275 a month, Mark Zandi, chief economist at Moody’s Analytics estimated in August. Not only is this a hit to household budgets, it will be felt in the broader economy.

Consumer spending is the main engine of economic growth, accounting for 68% of the nation’s total economic output. Zandi estimates people wi🌳ll spend $80 billion less per year, reducing the gross domestic product by a quarter of a percentage point.

Spending has already fallen on r🐠estaurants, airlines, hotels, and c😼ars, according to a September research note by Pantheon Macroeconomics.

Indeed, student loan repayments together with other disruptions including the Fe✱deral Reserve’s campaign of anti-inf♍lation interest rate hikes, the 澳洲幸运5官方开奖结果体彩网:UAW strike, a 澳洲幸运5官方开奖结果体彩网:potential government shutdown, and 澳洲幸运5官方开奖结果体彩网:high gas prices, could push the economy into🥀 a recession later this year, inde💛pendent forecaster Robert Fry said in a September commentary.

This article is the second in a five-part series reviewing the changes to the student loan landscape over the three years that payments on federal student loans have been paused. Subsequent installments will cover changing rules for interest accumulation, how millions of borrowers got their loans forgiven under Biden and other ways that the student loan landscape has been altered.