Dealing with Student Loans, Rising Interest Rates, and Inflation

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Since the onset of the pandemic in March 2020, Washington has announced six freezes on student loan debt. The latest moratorium was announced by President Biden in early April, when interest and payments were deferred until September 1, 2022.

Especially at the beginning of the pandemic, when everything about the economy was disoriented, deferral of student loan interest and payments was welcome news to many of my clients and their children. Biden campaigned on the promise to forgive up to $10,000 in student debt per borrower, and since taking office he has canceled more than $16 billion in federal education debt, though most of the benefits have gone to borrowers with total and permanent disabilities, those who attended now-defunct institutions, and public-service workers.

While pushing back the start date for interest accrual and payments has been a relief to many, the fact is that September 1 is coming, and it is unlikely that the political tightrope act will allow an infinite number of additional delays. In other words, many of my clients or their kids will face repaying those loans. And given the inflationary environment and related rising interest rates, some of them will need to make careful choices about prioritizing their payback plans.

For one thing, the rising costs for everything from gasoline to milk means that borrowers will have less disposable income from which to make payments. Even if they were making their payments with relative ease prior to the moratorium, the dollars in their accounts won’t stretch as far now as they did then. Especially since wages have generally not kept pace with inflation, the prospect of loans with rising interest rates is not pleasant to contemplate.