How Will the Student Loan Wake-Up-Call Affect You?

Apple Podcast Spotify

How Will the Student Loan Wake-Up-Call Affect You?

Did you realize that many borrowers of student loans have not made a payment since March of 2020? But because the Department of Education recently started collecting student loans in default, practically, payments for student loans payments have come due in more ways than one. Brian Wesbury with First Trust Advisors provided some helpful data on May 15th we’ll be referring to throughout this episode to give you an idea of the scope of debt sitting out there, and then I’ll try share some potential implications for the U.S. Economy and for you.

The amount of outstanding student loan debt is massive – roughly $1.8t. The number of borrowers is high as well – about 45 million people. Only 38% of these 45 million people are considered “up to date” on their payments. This is a problem. Not only are well over half of borrowers not up to date, but it’s possible that about 25% of them will soon be in default status. A silver lining? Almost a third of borrowers have balances of $10,000 or less. This group may have to make some adjustments, but if they are willing, they should be able to get on track and eliminate this debt. But the bulk of borrowers (41%) have balances in the $10,000-$40,000 range. This is a more formidable hill to climb and will have a much bigger effect on their finances.

So, what might this student loan reality mean for the U.S. Economy?

It means that certain consumers will pull back on spending. If you’ve just seen your monthly obligations go up, you are going to have to make adjustments elsewhere. Now it’s not that half of U.S. Consumers have student loan debt. It’s roughly 17%. And some of that 17% will be able to resume payments. So I don’t think a consumer spending apocalypse is coming. But it is a strong headwind that will definitely impact overall spending in some way.

It means that universities are going to have to articulate value like never before. With an expectation that student loans will have to be repaid, fewer people will be lining up to go to college. This will lead to less demand, which will create more competition among colleges and universities. My best guess is that the strong ones that have something of distinct value to offer will get stronger. The ones that have just become diploma factories will struggle more and more. There is massive change going on in the higher education world and this resumption of student loan payments will only accelerate it.

It means that community colleges and technical training schools will see increased demand. Many of these options offer very practical training for particular occupations. Some companies are in such need of workers they may offer to pay for this training, eliminating the need for these people to borrow any money at all. Not to mention in Tennessee the TN Promise Scholarship can provide Community College free of charge under certain conditions. With the President pushing to begin a manufacturing renaissance in the U.S. don’t be surprised to see vocational technological training increasing in popularity.

It means housing affordability will continue to be a challenge. Student loan payments affect your debt ratio, which affects how much house you can afford. Look to see more and more multi-generational housing (which is something that was quite common in the past). Grandparents, parents, and adult children may more commonly live under one roof and pool their income to take care of housing expenses, even if these conditions are temporary until student loans get repaid. According to the National Association of Realtors, 17% of all U.S. homebuyers in the recent year are in that category.

It means that credit card delinquencies are likely to rise. They had already almost doubled in the last three years before these student loan payments cranked back up. Some borrowers will simply shift this debt over the credit cards at higher rates, which will make the debt even harder to repay.

Perhaps this is going to affect you directly. Maybe you haven’t had to worry about these student loan payments for 5 years and now you are trying to figure out what to do. Here are some quick tips:

Don’t transfer your debt to a credit card. Since credit cards do not have payments with a finish line to help you pay off your debt, you’ll be in even worse shape if you do this. Let’s find another way to take care of this debt.
Cut some of your subscriptions. A streaming service here, Amazon Prime over there, a Cadillac cell phone package there, and you have racked up hundreds of dollars in nice but not necessary services. You can live without most of these. And getting rid of them will provide some enhanced motivation to pay off that student debt so you can get them back.

Eat at home more often. If you need to tighten the belt, take a look at how much you spent last month eating out and seek to reduce it in a meaningful way. It’s not that you should never go out to eat. But do it because you planned to eat out, not because you didn’t have anything at home you could fix. Eating at home is almost always cheaper than eating out.

Another place you can save is by cutting your cell phone insurance. Some of you are paying big bucks for this. You might reply, then what do I do if I drop my phone and crack the screen? I’m glad you asked. Did you know that our Foundation Benefits and Foundation Benefits with high interest offers you cell phone protection for a fraction of the cost? We can save you big money. Start your financial conversation today to see if one of these benefit-packed checking accounts might be appropriate for you by visiting Foundationbank.org. We also hope you’ll subscribe to this podcast to it in your favorite podcast app and share it on social media. 

Until our next episode, God bless you.

-President Chad P. Wilson, CFP

Today’s episode of “Money Matters” was written and recorded by President Chad P. Wilson of Foundation Bank/McKenzie Banking Company on May 20, 2025. This episode does not constitute financial advice. Please consult a financial professional to discuss your specific needs. Any rates mentioned are subject to change and are accurate as of the recording date. Foundation Bank/MBC is an Equal Housing Lender, Member FDIC.