US student loans were left on Stand-by and their reactivation threatens the economy

A little-known measure of the Trump administration’s stimulus package to boost the economy with Covid-related lockdowns was to pause student loans. This was one more measure. Let college graduates not have this burden at a time when they may have lost their jobs and not having facilities to obtain new jobs.

This measure was a increase in the financial cost of the Federal Government, but also a relief to millions of people who have been free of these debts. It may even have had to do with the Great Job Quit in which millions of people left their jobs. But the big hiatus is about to end, and getting started can be problematic.

US study loans

Americans owe roughly the GDP of Spain in student loans alone. One in six adults in the US has a student loan with an average of $30,000-37,000. But there are those who owe much more, perhaps 65,000 or 90,000 (for example, someone who has obtained a postgraduate degree shortly after graduating).

Student loans are not dealt with directly by the federal government, but with a financial institution that handles them for you. With which operation is a bit complex since the government does not have the detail of how much each person has borrowed, and how well they are responding to their loans.

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Whether or not there is a student loan bubble has been discussed at length. There are opinions from both typesbut the truth is that student loans are still demanded and granted.

Regarding student loans, it has been said that money can end up making life very complicated for those who asked for money, especially if they have not been able to have an income that allows them to repay the loans. But today we are not talking about these people, but in general about those who were more or less able to repay their loans.

the big break

During the quarantine, it was wanted to make it easier for Americans who have this debt to put on hold, or stop repaying these loans. The return was paused. this pause has had six extensionsthe last one of the Biden administration that has extended it until August 31, 2022.

This is kind of grant to those who have university studies, since they are not even generating interest. The cost has been approximately 100 million for the federal government, and it can be considered that the American debtor has received around 5,000 dollars only for the interest that he has failed to pay.

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But this may end. On the one hand there are hardly any restrictive measures left regarding the spread of Covid19, on the other hand the economy has expanded. It has even recovered to the point where the economy will require interest rate hikes to curb inflation.

But what have most of the debtors done? Well, they’ve started using the money they used to pay off their college loans for other things. Maybe to save for retirement, maybe to get married, maybe to have some savings, maybe to finance the expenses of having a new child, maybe to treat yourself or to repay other loans. But there are also those who have taken the opportunity to borrow more.

Let’s keep in mind that student loans can be forgiven after a period of 20-25 years. So that with only a few years left, some borrowers may say, why bother?

The return to normal

Soon the break will be over and it will be time to repay the student loans. The end of the pandemic can be considered to have already arrived, which makes financial relief measures meaningless. Also, as the Federal Reserve stops printing money, there is beginning to be an interest in stopping subsidizing the average richest of their generation.

The return to normal will not be smooth. Many people have forgotten about their student loan or its characteristics, to which must be added the problem mentioned above of being managed by companies on behalf of the government. They are not very clear about how much they are going to have to return, what interest rate applies to them or the password of their account. It is even possible that, having used the e-mail of their university from which they have already graduated, companies will have problems getting in touch. Others may have changed their phone number.

Namely, it is highly likely that there will be defaults, intentional or not, on US student loans. These add up to approximately 1.5 trillion dollars in total. Depending on how orderly or not this return to normalcy is, how prepared or unprepared borrowers and lenders are, we may or may not be in for a surprise in the financial system of the world’s largest economy.

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