Jul 12, 2023 - Education

Student loan payments set to resume for thousands of Iowans

Average federal student loans per borrower, by location
Data: Federal Student Aid; Map: Simran Parwani/Axios

There's a big economic shock coming this fall for both the economy and millions of American households — the resumption of student loan payments.

  • Student loan interest resumes in September and payments start again in October.

Why it matters: For millions, that means real and often painful cuts to spending — cuts that will translate to a slowdown for the economy overall.

  • The pullback will ease inflation on the margins as the Fed tries to navigate a soft landing, but some experts fear it could push the U.S. economy toward recession.
  • "This is definitely a cause for concern," says Jesse Wheeler, a senior economist at Morning Consult. "There are a lot of headwinds already in place with the economy."

The big picture: Americans with student loan debt tend to be younger, with lower incomes — so because they're already spending a higher share of their income, an additional monthly payment will hurt.

  • Overall, the resumption of student loan payments will pull $70 billion a year out of the economy, according to an estimate from Moody's Analytics.
  • The coming cliff is the latest in a string of withdrawals of pandemic-era supports, including the end of stimulus checks and child care tax credits, as well as the pullback on SNAP benefits and Medicaid supports.

That number is higher than initially expected because the Supreme Court shot down the Biden administration's debt forgiveness plan earlier this month.

Zoom in: There are 441,000 federal loan borrowers in Iowa who owe nearly $14 billion total, according to Federal Student Aid data.

  • At least 169,000 of those borrowers would have benefited from up to $20,000 in loan forgiveness from Biden's struck-down plan.

What they're saying: Peter Orazem, an economics professor at Iowa State University, told The Gazette in June that loan payers should be in a better position to pay off their debts now if they were able to save their money over the last two years of deferred payments.

  • But a 2021 survey from Pew Charitable Trusts showed 59% of borrowers who chose not to make loan payments were instead using the money for "essentials" like food and rent.

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