Millions of recent graduates, primarily from Gen Z, will commence student loan repayments this fall for the first time, following a three-year forbearance period due to the pandemic. As they begin to establish themselves in the job market, they face potential financial hardships, especially with the U.S. Supreme Court’s rejection of President Biden’s one-off forgiveness plan.
Millions of recent graduates, predominantly from Gen Z, will experience the impact of student loan repayments for the first time this fall, following a three-year moratorium on payments due to the pandemic. As these young professionals establish themselves in the workforce, the reality of the impending financial burden, which could exceed $500 monthly for some, is generating widespread concern.
The relief offered by the forbearance period enabled many graduates to attain financial stability, allowing them to save money, leave their parents’ homes, and settle other debts. However, the U.S. Supreme Court’s rejection of President Biden’s one-off forgiveness scheme has compelled them to reassess their fiscal scenarios. Experts forecast a decrease in consumer expenditure and a surge in credit card and auto loan defaults as a consequence.
The situation is exacerbated by continued economic uncertainties like high inflation and possible recession. With over 11 million people earning undergraduate degrees during the pandemic, more than half are indebted with student loans. Considering the average starting salary is $55,911, as reported by the National Association of Colleges and Employers, repaying these loans is a formidable challenge.
A comparison by the Federal Reserve Bank of St. Louis revealed that 36 percent of Gen Zers (aged 20-25) have student loan debt, a notable increase from the 31 percent of millennials at the same age. The average loan balance for this younger cohort is also 13 percent higher, averaging $20,900.
Efforts are underway to alleviate the burden. The Biden administration has announced a new plan that exempts borrowers from delinquency, credit bureau reporting, and debt collection referrals if they miss payments until September 2024. Simultaneously, they are working on a forgiveness plan under the Higher Education Act of 1965, albeit this may face legal challenges and implementation could take years.
The return of student loan payments is likely to put significant pressure on recent graduates, potentially delaying key life milestones such as home buying and marriage. For these millions of young Americans, the transition to postgraduate life just became a little bit more challenging.
