Kevin Dietsch/UPI/Shutterstock/Kevin Dietsch/UPI/Shutterstock
The fate of President Joe Biden’s student loan forgiveness program is still unclear as the Supreme Court is set to hear arguments on Feb. 28. Meanwhile, millions of borrowers are anxiously awaiting a decision – expected in June – that could also impact the economy.
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White House data shows that 26.26 million student loan borrowers have already applied for relief under the forgiveness program or have been automatically deemed eligible, and that 16.48 million fully approved applications have been sent to loan servicers for relief. And it’s estimated that more than 40 million borrowers would qualify for the debt relief program, with nearly 90% of debt relief benefits going to borrowers earning less than $75,000 a year.
Americans will have less money
One implication that rejection of the program could have is that less money in Americans’ wallets means less money in the American economy. Indeed, as a report by the Education Data Initiative found, the impact of student loan debt on the economy is similar to that of a recession, slowing business growth and stifling consumer spending.
“Consumer spending is directly linked to personal finances. Economists agree that consumers will reduce spending when they have less disposable income because of debt,” the report said. “Every time a consumer’s debt ratio increases by 1%, their consumption decreases by up to 3.7%.”
More Americans could fall into poverty
A February Credit Karma study found that not only do 53% of respondents with outstanding government student loans say their financial stability depends on their loans being forgiven, but 26% of them said the money they Previously paying for their student loans is now being used for bills and necessities.
“Federal student loan easements have served as a financial lifeline for millions of Americans who have struggled with great uncertainty over the past three years. With payments resuming this summer or possibly sooner, borrowers should start budgeting now,” Courtney Alev, consumer finance attorney at Credit Karma, said in the study.
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Lower birth rates and older parents
Another potential economic impact of failing the program is that young Americans could delay starting families because the financial costs are too high.
“Having children is tremendously expensive in the United States, and any disposable income freed up by debt relief can be redirected to investing in the future generation,” said Natasha Quadlin, associate professor of sociology at the University of California, Los Angeles. to Fortune.
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