In America, the total owed on student loan debt is more than $1.7 trillion. There’s been a reprieve in making payments for federal student loan borrowers because of the Department of Education’s COVID-19 student loan forbearance program.
That’s ending, with payments on federal student loans set to start accruing interest in September, and payments will start again this month.
Borrowers are being advised to prepare before the October deadline, including knowing who their servicer is and determining whether there’s been a change in their monthly payment amount.
At the start of the COVID-19 pandemic, the federal government paused payments and dropped all the interest rates to 0% to give borrowers a break. The Biden administration since then has extended the pause a total of eight times. Borrowers are being told not to expect any more extensions.
There are likely significant ripple effects from resuming repayments on student loans, and the housing market may see the results significantly. We’re already facing one of the most unaffordable housing markets in the U.S.
Recently, there’s been research that’s indicated the moratorium on student loan payments helped some borrowers save money for a down payment. However, home prices have increased dramatically during that time, paired with spiking interest rates. This is already making owning a home out of reach for many people.
If these same individuals repay hundreds of dollars each month for their student loans, the problem is only expected to worsen.
Recently, Zillow analyzed how much student loan borrowers were typically able to save since the start of the moratorium on student loans. Then, it compared that to the down payment amount needed to buy a house in the 50 biggest metro areas of the country.
Based on that analysis, the ordinary borrower has delayed about $15,000 in their student loan payments through the pause. In 29 housing markets, an everyday student loan borrower could have saved at least enough to make a 5% down payment on a median home. While the 20% down payment is traditional, for first-time homebuyers, 5% is a more realistic amount.
The Zillow analysis is based on the concept that borrowers saved the money they would have otherwise put toward loan payments throughout the pause, but we don’t know how many borrowers could or did do that.
In separate research, there’s the indication many borrowers put the money in other places, and often that was the everyday essentials which have soared in cost because of inflation.
Rents have risen about 27% throughout the pandemic, for example, and new home loans have almost doubled in price. Since starting the moratorium on student loans, median home prices have increased by more than 35%.
In the report, Nicole Bauchaud, a senior economist at Zillow, said that resuming student loan payments this fall will likely bring new housing affordability challenges, especially for would-be first-time buyers.
Even if someone could save money during the repayment pause, an analysis from Wells Fargo recently found that typical borrowers now have payments between $210 and $314 monthly, reducing their budgets significantly.
On the flip side, some experts and analysts believe resuming the repayment of student loans could cool prices over the long term, making homeownership in reach for more people.
If consumers were to pull back somewhat on their spending, it could dampen inflation, reducing the pressure on the Federal Reserve to continue its historic raising of rates.
