As American student loan borrowers gear up to resume monthly payments, they have made record payments on their loans over the past few weeks, according to the U.S. Treasury data-getting ahead of its first official due date in more than three years.
Over the week of Sept. 7, Borrowers repaid more than $2 billion over the week, according to Treasury receipts from the U.S. Department of Education analyzed by Haver Analytics. At this time last year, payments for the week were close to $400 million.
The two companies repaid a record $3.6 billion in the week of September 1, and $1.4 billion in the week before that. The last time payments were over $1 billion for the week was in March 2020, before they were put on pause by the federal government because of the COVID-19 pandemic.
It is a big shift from the past three years and indicative of the changing winds of household balance sheets and thebroader U.S. economy.
Borrowers may be trying to get ahead of the payments to pay down their debt, though interest hasn't had much of a chance to accrue, said Jacob Channel, senior economist at LendingTree.
Some borrowers were able to save some money over the last three and a half years with the intent of putting it toward their loans in one lump sum, says Betsy Mayotte, president of the Institute of Student Loan Advisors. Now that the zero-interest period has ended, they are sending in those lump sums.
That works well for those borrowers. It may not work well for the U.S. economy as a whole. Consumer spending may decrease, with households putting hundreds of dollars a month toward their loan payments, causing a drop in the value of the U.S. economy, economists and analysts have said.
This is doubly true because the payment resumption comes at the same time as a few other stressors on household budgets. Americans have finally largely used up the savings they accumulated during the pandemic, making them less of a financial cushion. Even though inflation is declining, budgets are still hit hard by inflation. Also, interest rates are making things less affordable.
And another pandemic-era benefit programs are winding down. The US is on the brink of a childcare cliff, as the funding for grants that allowed tens of thousands of daycare centers to open expires at the end of the month. The Center on budget and policy priorities recommends new work requirements on food stamps that could result in 750,000 adults losing the benefits, the Center for Budget and Policy Priorities said in a statement. And millions are expected to lose their health insurance coverage as states disenroll constituents who no longer qualify for Medicaid.
While some borrowers seem able to put money toward their loans, Channel said it won't be a cakewalk for everyone. He encourages those who are worried to get in touch with their loan provider as soon as possible, or head to studentaid.gov to see what their options are.
One new option: the SAVE plan, which is scheduled to be approved by the biden administration, is the Saving on a Valuable Education. The income-driven repayment can reduce the monthly bills of those who qualify to as little as $0 a month. The payment is based on the size of the family and the discretionary income of the individuals who are contributing to the program. Over 4 million people have already signed up for the plan, the Education Department announced today.