Student loan debt has become a hot-button issue this year, with many borrowers feeling the weight of their financial obligations with the Supreme Court overturning the debt forgiveness. With payments resuming this upcoming month, borrowers have mixed feelings on how to proceed. According to Earnest, a student loan refinancing company, 43 million Americans are holding more than $1.75 trillion in outstanding student loans. Some borrowers believe that boycotting the payments will benefit their situation.
Collective action can be powerful and lead to change, however, not repaying student loans can lead to more serious financial risk. Financially vulnerable borrowers will not be considered delinquent, reported to credit bureaus, or placed in default if they are unable to make payments from October 1 to September 30, 2024. However, interest has already begun to accumulate this past month and will continue to do so if the balance is not paid down. And once the on-ramp period ends, boycotters will start facing damaged credit scores, seized tax refunds, and more.
What can borrowers do? Incorporate your monthly student loan payments back into your budget. If this is your first student loan payment, explore which repayment plan works best for your budget. A new avenue opened up for borrowers through the most recent tax bill. The SECURE 2.0 Act added the option for employers to assist in making payments toward student loans. This option does not begin until 2024 and it will also count as if it was a qualified plan (401k) match, thus likely reducing any qualified plan match by that amount in order to make it “fair” for all employees. Alternatively, your employer may offer their own programs for paying back student loans.
While student loan payments may appear to be a losing battle for borrowers, boycotting these payments is not a safe solution. Explore how your employer could also help with payments. More importantly, take ownership of the debt that was taken on and work it into the budget. Attack it aggressively in order to free up income in the future to start saving for retirement. The start of these payments will mark the beginning of a new norm that can empower borrowers to eliminate a debt that can linger for too long.