The $1.8 trillion student debt bubble is about to burst.
After a three-year pause, payments on federal student loans are set to resume in the next six months, and the economic consequences will be far-reaching: More than 4 million Americans are expected to fall behind on their debt and millions more will struggle with the added costs as inflation slams consumers. Even those who can handle the bills will have less money to spend elsewhere, with experts predicting more delinquencies on credit cards and auto loans as the impact cascades through the economy.
The Supreme Court will hear arguments Feb. 28 in two cases dealing with President Joe Biden’s plan to forgive up to $20,000 in student debt per federal borrower. But however the court rules, the broader problem isn’t going away. The total amount of US student debt more than doubled over the last 12 years as tuition costs soared, and 15% of borrowers were already behind on payments before the pandemic pause. The number of defaults and delinquencies could rise and surpass pre-pandemic levels if payments resume without debt relief, according to the Federal Reserve Bank of New York.
“This is not just a moment in time where people aren’t going to be able to pay their bills,” said Max Lubin, co-founder and chief executive officer of Rise, a student advocacy group. “That kind of hardship and that kind of difficult experience is something that’s going to have repercussions around someone’s life and their livelihood for years to come.”
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