When President Biden introduced a plan to have federal student loan debt broadly forgiven, many borrowers were no doubt hopeful that it would actually come to life. But those dreams were shattered when the Supreme Court ruled against student loan forgiveness. And now that that’s off the table, borrowers will need to gear up to start making monthly payments again after a multi-year pause.
Borrowers were allowed to stop making payments during the pandemic. Given the widespread financial crisis it spurred, that was understandable.
But come this fall, millions of borrowers will need to prepare to start paying their student loans once again. And that might prove even more difficult than expected for one big reason.
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When the debt just piles on
Data from TransUnion reveals that during the pandemic, many consumers with existing student loans added to their debt in different forms. For some, that meant opening new credit card accounts. For other, it meant signing auto loans or personal loans.
But all told, a large number of student loan borrowers also owe money in the form of other debts. And that’s apt to make repaying their student loans even more difficult.
Of course, it’s easy to see why student loan borrowers may have needed to resort to debt during that period of early 2020 through mid-2023 that TransUnion’s data tracked. Many people were out of work for months on end and may have needed to borrow money to keep up with their basic expenses.
And once the unemployment crisis started to improve, inflation began to soar. So even people who had jobs in 2021 and 2022 may have needed to borrow money to keep up with their rising living costs.
Unfortunately, borrowers who are on the hook for multiple types of debt may have an exceedingly difficult time keeping up with their payments this fall. So it’s important for people in that situation to do what they can to stay current.
The good news is that borrowers who are late making student loan payments will get a reprieve from having those late payments show up on their credit reports until the end of September 2024. However, that same leeway isn’t being extended for non-student loan debt.
It’s also important to know that even though student loan delinquencies won’t be reported to the credit bureaus right away, interest will still accrue on late payments. So it’s in the best interest of borrowers to try to stay current.
If you took on additional debt during the pandemic and now have to work monthly student loan payments into the mix, get yourself on a tight budget that prioritizes your non-negotiable expenses so you don’t fall behind on them. You may also want to look at getting a side job on top of your main one to drum up more income.
You may also want to consider consolidating some of your non-student loan debt if you’re juggling multiple obligations. But you may not want to roll your student debt into a different loan type, because in doing so, you might lose some of the protections federal loan borrowers are currently privy to.
