Student loan payments are set to restart in October and 57 percent of borrowers say they need to make more money to comfortably afford their monthly payments, according to a survey from NerdWallet.
NerdWallet Personal Finance Expert Kimberly Palmer and Bipartisan Policy Center Economic Policy Project Director Rachel Snyderman join Yahoo Finance Live to discuss the impact of student loan repayment on borrowers.
Palmer says the survey found borrowers to be under financial pressure and “even confused because we’ve had such a long break.” She states that in the three-and-a-half-year payment pause, Americans spent on essentials like food and housing, and “now suddenly, people have to find a way to start making those payments.”
Snyderman calls the student loan crisis “the symptom and not the disease” found in the educational system. “We really do need to look at commonsense solutions… to really put the focus on accessibility and accountability,” Snyderman says, so that students feel like “there is a bang for their buck in making such a tremendous investment.”
According to a recent nerdwallet survey, a majority of student loan borrowers viewed the debt as a burden with 57%. Saying, they don't make enough money to comfortably afford their monthly payments. So how large of an impact could this really have on the economy?
Joining us now as part of our special student loans smarter strategies are Rachel Snyderman, bipartisan policy center's economic policy project director. We also have Kimberly Palmer, nerdwallet personal finance expert. Great to see you both of you.
Kimberly, let me start with you. Nerdwallet, like I just said, recently putting out a survey on this. How are students or former students, I should say, feeling right now given the fact that we have that October 1 date here looming only a couple of weeks away? And people are going to be paying many of them, paying their student loan payments all for the first time.
And so what we found in our survey is that people are feeling very financially stressed about that and even confused. Because we've had such a long break, a lot of people don't even know exactly how much they owe, who their lender is. And so for some people, it starts with answering those basic questions.
BRAD SMITH: And so Rachel, when we think about what this lonG-term financial impact will be, how have you evaluated this from the bipartisan policy center's economic purview?
RACHEL SNYDERMAN: Well, I think that Kimberly makes a really great point where we need to hear parse out the micro household impacts from how we anticipate the resumption of student loans to impact the broader macro economy. We're seeing, for example, estimates from Morgan Stanley that say that by year end, the resumption of student loan payments, might cause personal consumption expenditures to decrease by 1/10 of 1%.
That is a marginally small impact on the macro economy. But at the household level, these are real financial decisions and shocks that are going to happen. Now, what am optimistic at and what we're seeing here at the bipartisan policy center is that when it comes to the policy responses to help households really ease back into the resumption of student loan payments, the Biden administration, for example, has offered really a one-year grace period that is going to allow students to get used to either for the first time paying their student loans or for those who haven't paid them in 3 and 1/2 years to really allow a one-year grace period, whereby, they're not going to be penalized via higher interest rates or credit score impacts, if they miss a payment over the next year.
So I think that that's really critical. We're also seeing that there is a push to expand income-driven repayment programs to ensure that those lowest income borrowers who might be hit the most severely with the resumption of student loan payments are going to be able to make payments that are proportional and affordable based off of their income. And allow the lowest income earners to even perhaps not make payments.
So I think that a lot of focus here, but, also, that there are some opportunities to help ease the financial burden in the short term.
SEANA SMITH: Kimberly, do you think that that's enough here to really boost sentiment at least for the short term? And how big of a-- or how do you see some of these consumers shifting their spending habits, as they do start to resume their monthly payments?
KIMBERLY PALMER: Well, those programs are certainly really essential to helping people get through this challenging period. And I think it's worth noting too. We're in an environment, where we're facing inflation. People are basically stressed anyway, even before these repayments started. And so it really begins for people with number one, getting a hold on what you owe, logging in to studentaid.gov, and just getting a sense of how you will work those payments into your monthly budget.
And then looking more closely at that monthly budget for a lot of people, we're going to have to shift some of our spending habits. So, for example, looking for ways to cut back in areas like rent, like food. And so we can redirect those payments. For other people, it means looking for ways to earn more income. And so they can cover all of these costs.
Because the bottom line is for so many people, it's a huge shift. And it's causing a lot of stress and strain.
BRAD SMITH: It was particularly interesting, Kimberly. One of the stats that came out from the survey and the report here about college being worth the cost. And I'll put this question to Rachel because I'll curtail my possible lecture about the cost of college or whether or not for certain majors, you're getting your bang for your buck, or if you're actually getting the job placement, even that you should be attaining once you come out of college school, the associated costs, so forth.
All of those things considered, is college these days-- and don't even get me started on the private institutions-- all that considered, is college these days worth the cost? And where on the policy side does there need to be more of a guardrails or a boundaries that are set. So that families aren't impacted for not just years, but decades paying off student loans.
RACHEL SNYDERMAN: Well, you make an excellent point. And this is an area where the bipartisan policy center has been doing a tremendous amount of research to really estimate and understand the return on the investment and the value of that college degree. And I think that as we talk about the resumption of student loan payments, and these issues of debt forgiveness, what we're talking about really is the symptom and not the disease.
And the fact that the cost of attaining a higher education degree has become unaffordable and unattainable. And so we really do need to look at common sense solutions. And that's where a lot of our work is focused, for example, on strengthening the value of Pell grants. Ensuring that states are able to adequately fund their higher education systems to really put the focus on accessibility and accountability, when it comes to our higher education institutions.
So that students are leaving. Even if they do need to take out loans to be able to support their education. That they really do feel that there is a bang for their buck and invest in making such a tremendous investment. But it's so crucial that you point out that we really are just talking here about these underlying Band-Aid solutions and not really the big elephant in the room, which is the cost of college.
SEANA SMITH: Well, Kimberly, right now, many student loan borrowers are faced with some pretty tough decisions. If you were to give one or two top tips for those people right now that are getting ready to start paying off their loans, what would you tell them?
KIMBERLY PALMER: Well, the first thing is to know you're not alone. A lot of people are going through this. And there's resources out there to help you feel supported as you figure out what works best for you.
And then secondly, figure out what of the benefits could help you. So, for example, that 12-month on-ramp that kicks in automatically if you don't make your payments, you can consider that if you need to. Although, it's important to note that interest still accrues during that time. And then you can also, of course, look at the income-driven repayment plans too.
I think a great place to start is studentaid.gov. So you can see what you might be eligible and understand all of the nuances of those new programs.
BRAD SMITH: Just lastly, while we have both of you. I'll put this question to each of you to be able to answer. But this is continuously one of education at a whole, if we can think of it as a commodity, one of the biggest commodities that the US has as well, especially in higher education and attracting talent from international backgrounds, does all of the conversation around the cost of college that we've been having over the past several months and, even years, does that deter future potential students from coming to US institutions? And how do we course correct that as well?
I'll go to you first, Rachel. And then Kimberly, if you wanted to weigh in.
RACHEL SNYDERMAN: I think it's an excellent question. And I think one that we have to look at. Holistically, it involves, of course, employment and visa discussions, following an individual's educational experience in the United States. But I do think that it is a conversation that we need to be having, especially as we're looking at the funding mechanisms between private institutions and state run institutions, as well.
So all of this is a part of a broader conversation that we need to have about immigration and an opportunity to support younger workers, as they enter the workforce following their college experience.
KIMBERLY PALMER: Yeah. And the only thing I would add to that is that it also speaks to how important it can be up front to make those decisions before you go to college. So weighing, what makes the most sense for you? What scholarships are available? Doing all of that research up front. So you understand the financial impact of any loans you take on can really help minimize the stress that you feel later.
BRAD SMITH: All right. Well, said, both of you. Great to have you here with us today. Rachel Snyderman, bipartisan policy center's economic policy project director and Kimberly Palmer, nerdwallet, personal finance expert.
Great to speak with you.