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Impact of Federal Student Loan Repayment Restart: Economic Effects and Borrower Strategies

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Explore the potential economic consequences as millions of Americans resume federal student loan payments. Learn about varied borrower situations, outstanding debt, repayment strategies, and measures to mitigate impact

Questions Answered in this Article

1. How will the resumption of federal student loan payments impact the economy?

  • Answer: The resumption of federal student loan payments could have wide-ranging effects on the economy, given that about 43.6 million Americans hold federal student loan debt, making the potential impact broad and significant.

2. How will the repayment situation vary for different borrowers?

  • Answer: The repayment situation for different borrowers will vary based on their payment history, debt amount, repayment program, current and future income, and competing monthly expenses.

3. How much federal student loan debt is currently outstanding?

  • Answer: There is approximately $1.6 trillion in federal student loan debt outstanding, with an expected reduction of around $39 billion before repayment restarts due to a one-time adjustment for long-term debtholders.

4. What efforts are being made to ease the economic impact of reentering loan repayment?

  • Answer: The White House is implementing a repayment plan to lower monthly payments for some borrowers and introducing a 12-month “on-ramp” where late payments won’t be penalized, both aimed at mitigating the economic impact of resuming loan payments.

5. What are the potential economic outcomes associated with the return to loan repayment?

  • Answer: There are several potential economic outcomes to monitor, including a possible rise in student loan delinquencies, a slowdown in consumer spending, the likelihood of low or declining savings, the possibility of increased delinquencies across different debt types, and the overall uncertainty of the impact on the economy in the coming months and years.

Navigating the Economic Effects of Federal Student Loan Repayment Restart

After a more than three-year interest-free hiatus on federal student loan payments, millions of Americans are about to face monthly payments, and the potential ramifications could reverberate throughout the economy.

The impact of resuming payments varies greatly for individual borrowers, contingent on their payment history, debt magnitude, repayment program, current and future income prospects, and other competing monthly expenses. The enormity of the issue is evident, with approximately 43.6 million individuals holding federal student loan debt, per the Department of Education. This suggests that the economy’s consequences could be wide-reaching even if some borrowers don’t encounter significant difficulties.

Presently, outstanding federal student loan debt amounts to a staggering $1.6 trillion, but this figure is expected to decrease by an estimated $39 billion (about 2.4%) before repayment recommences. This reduction results from a one-time adjustment, recently announced by the Biden administration, aimed at long-term debt holders who have been paying for two decades or more, effectively clearing their slates.

The White House also implements a repayment plan that could significantly lower monthly payments for specific borrowers. Moreover, a 12-month “on-ramp” is in place, allowing those entering repayment soon to avoid penalties for late payments. These combined efforts may help alleviate and slow the economic repercussions for those reentering repayment.

The impending maturity of hundreds of billions of dollars in consumer debt has significant economic implications. This debt affects nearly 17% of American adults and is the second-largest household debt source, as the NY Fed report indicates. Nevertheless, this impact’s precise magnitude remains uncertain and will likely unfold over the coming months and years.

Outlined below are four critical economic outcomes to monitor in the upcoming months:

Student Loan Delinquencies May Rise

Before the pandemic, nearly 11% of student loan balances were 90 or more days overdue in the first quarter of 2020. The payment pause helped reduce this rate to less than 1% as of the first quarter 2023. Nevertheless, with the 12-month on-ramp plan mitigating penalties for late payments, some individuals who faced difficulties before the pandemic might find themselves again in a challenging situation.

Consumer Spending Could Slow

Various factors increased household disposable income during the pandemic, including relief payments and forbearances on mortgages and student loans. This boosted consumer spending, contributing to higher-than-ideal inflation rates. However, the resumption of debt obligations means some families must curb spending, potentially decreasing consumer demand.

Savings May Remain Low or Decline Further

The personal saving rate, which reached 34% early in the pandemic, has since dropped to 4.6%, the lowest since the Great Recession. As student loan debt payments become due, this rate will likely decrease for affected households.

Delinquencies Across Various Debt Types Could Increase

Borrowers on a student loan payment pause substantially increased their borrowing for mortgages, auto loans, and credit cards, as highlighted in a working paper from the National Bureau of Economic Research. While credit card balances initially declined in 2020 due to relief payments, this reduction was ultimately undone. As the Household Debt and Credit survey revealed, total debt balances surged by 19% from 2020 to 2023, compared to a 12% increase from 2017 to 2020. The liquidity provided to households with paused student loan debt may have been directed towards previously challenging expenses such as home or auto down payments, potentially leaving new homeowners (and additional debtholders) in a tight spot as they return to regular student loan obligations after three years without payments. Although the overall share of delinquent debt balances decreased from 3.2% to 1.4% during the three-year forbearance period (representing a difference of approximately $215 billion), likely, this rate will eventually settle closer to the pre-pandemic level.

For borrowers concerned about their ability to handle total student loan payments once the forbearance ends, the 12-month on-ramp period provides a safety net, preventing defaults. However, it’s important to note that interest will continue to accrue during this time, so making total payments as soon as possible is advisable. If the payments are still unmanageable, contacting your loan servicer is a smart move, as an income-driven repayment plan may be suitable, and a new project is expected to launch in the fall.


  • Millions of Americans will soon resume monthly payments on federal student loans after a three-year interest-free pause.
  • The economic impact of repayment varies depending on factors like payment history, debt amount, repayment program, and monthly expenses.
  • The potential impact on the economy is significant, with 43.6 million Americans holding federal student loan debt.
  • The outstanding federal student loan debt is $1.6 trillion, expected to decrease by $39 billion before repayment restarts due to a one-time adjustment.
  • The White House is implementing measures to soften the economic impact, including a repayment plan to reduce monthly payments and a 12-month “on-ramp” without late penalties.
  • Four potential economic outcomes include a potential rise in delinquencies, a slowdown in consumer spending, low or declining savings, and increased delinquencies across debt types.
  • The article emphasizes uncertainty in the overall economic impact as these changes unfold over the coming months and years.
  • Borrowers concerned about payments can use the 12-month on-ramp to avoid defaults, and a new income-driven repayment plan is set to launch soon.
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