No more freezing of accounts for student loan borrowers starting October, and resuming student loan payments might not be ideal at one point as it can trigger some areas of the economy, especially the housing market, says expert Kurt Carlton.
Resuming Student Loan Payments Effects On The Economy
For the record, there are approximately forty-four million borrowers who experienced relief since the pause of student loan payments during the pandemic. Now that resuming student loan payments is set, the effects it might have on both the borrowers and the economy are also substantial.
Firstly, resuming student loan payments will put current homeowners borrowers on a tight budget as they will likely balance their monthly income on both mortgage and student loan debt. According to Carlton, there are factors that may contribute to the risks such as debt amount, monthly mortgage, and personal finances which may prompt either their mortgage or student loan payments default. Worst case scenario, resuming student loan payments may incite their foreclosure, put taints on their credit score and further complicate their future borrowing attempts.
Secondly, resuming student loan payments may pressure prospective buyers to review their current income, expenses, credit score, and debt-to-income ratio. However, with the new SAVE program, borrowers may improve their debt-to-income ratio which may help them to afford a home.
Thirdly, this might be minimal but resuming student loan payments may impact home prices. Although there are more than forty million Americans who have student loans and may struggle financially, as Carlton said, there are also two hundred million adults who are free from this debt. Carlton added resuming student loan payments may stimulate an increase in the proportion of older buyers.