Even for high earners, student loan repayment is crushing

This October, 28 million Americans are facing a monthly expense they haven’t seen in over three years: student loan payments. Three months after the Supreme Court struck down President Joe Biden’s student debt forgiveness plan, interest is again piling up and borrowers are combing over household budgets already stretched to the limit.

It’s a financial shake-up coming at a time when the cost of everything is unbearably bloated, whether it’s food, gas, rent, or mortgage rates. The pace of inflation has calmed, down to the middling threes from near 9 percent highs last year, but the price of goods isn’t decreasing. In a survey of more than 1,000 people by insurance firm MassMutual, about three-quarters of those with college debt said they’re planning on cutting spending now that student loan payments have resumed — with around half saying they’re slashing on essentials.

The return of student loan payments will hit low-income households most. About 50 percent of households making less than $50,000 a year believe they won’t be able to make all their loan payments, according to a June 2023 Morgan Stanley report. But college debt is a burden even for those with higher incomes. One recent Morning Consult report found that a majority of households making over $100,000 expected to miss at least one payment.

Bryan, 39, whose last name is being withheld to protect his privacy, is intent on making breakfast and lunch at home every day from now on, bringing packed leftovers with him on in-office days. When payments were paused, he and his wife would buy lunch someplace close to work, or indulge in a Starbucks coffee. He’s already cut out less-used streaming services. Such spending is hard to justify now that he’s once again chipping away at the school loans he’s been saddled with since 2011, when he graduated from an MBA program with about $32,000 of debt. He made steady payments until the pandemic pause.

“My balance went up during those nine years,” he says. Despite making payments for nearly a decade, he currently owes even more than he started with: $38,000, thanks to a 6.8 percent interest rate.

Bryan, who works in finance, earns roughly $140,000 a year. He recognizes that a monthly bill of around $325 isn’t as bad as what other borrowers face. Yet the student loan restart came right as his Seattle rent rose by 10 percent, to $3,400, and his car insurance by 27 percent. “When you add things up, it’s like $1,000 more a month that I wasn’t paying previously,” he says.

Bryan doesn’t qualify for the Biden administration’s income-based SAVE plan, which reduces payments most for low earners. It uses the federal poverty threshold (which is just $14,580) to determine borrowers’ reduced monthly payments — single households making $32,800 or less annually shouldn’t owe anything under SAVE. Borrowers like Bryan who are living in expensive cities with exorbitant rents, often having moved there for a well-paying job hard to find elsewhere, won’t see lower payments.

This past May, 32-year-old Veronica, who asked her surname not be published to maintain her privacy, graduated with an MBA and almost $100,000 in student loans. She originally thought her monthly payments would be around $115 per month due to the SAVE plan. Overjoyed, she entered the final stages of buying a home in Massachusetts, approved for the mortgage in part because of the assumption that her student loan obligations would hover around $100 each month.

Then the rest of her graduate school loans — there were seven in total — came into repayment status. About half of student debt is from graduate school, and grad school loans tend to have higher interest rates than undergrad ones, topping 7 percent this year; grad students can also take out more money than undergrads. The true number for Veronica’s loan payments was closer to $760 every month. She had to halt the purchase of the house, though she did eventually find a less expensive one she could qualify for a mortgage on. Her and her husband’s monthly household expenses are about $2,600, not including her current rent of $2,665 plus $250 per month for a parking spot. The mortgage on the new house would be $5,000 per month.

“It’s just embarrassing — I have a degree, I have a job,” Veronica says. “I make $95,000 a year, and look at me on the struggle bus. It’s ridiculous.” She and her husband have tamped down on “fun” money that went to hobbies, and her husband is dog walking to earn extra money.

Rose, who requested to use a pseudonym to protect her financial privacy, graduated with a master’s degree in 2019 with about $94,000 in student loans. She chose to go to grad school because she was living in a costly city — New York — making $35,000, with dim prospects of earning more. Attending school was expensive, even before future loan payments were figured in. Despite juggling a full-time job while pursuing her degree, she incurred about $20,000 worth of credit card debt for school and living expenses. When she couldn’t keep up with her minimum payments, her credit score tanked. “I’m really happy that I was able to go to grad school, because I don’t think I could get my job right now,” she says of her project manager role in the tech industry. At the same time, a part of her regrets it. “It kind of felt like a damned if you do, damned if you don’t situation.”

Now that student loan payments are back, she’s looking at more than $1,000 going toward both her credit card and student debt each month. Over the pandemic, she was laid off twice. Today she works three jobs — one full-time job in tech, plus two freelance roles for a total of about $120,000 a year — and still feels strapped, limiting her grocery budget to $50 per week. She’s considered taking on more freelance jobs. “But there are only 24 hours in a day,” she says.

Rose worries she might have to scale back how much she pays toward her credit card debt each month, which could lower her credit score even more. But she doesn’t want the balance on her hefty student loans to grow either.

One 65-year-old parent who took out Plus loans for two children told Vox they are delaying retirement and cutting back on food costs to make debt payments. Others are canceling vacations and gym memberships to prepare for their higher expenses.

The shadow student loan debt is casting over millions of people isn’t just about the difficulty of rearranging expenses to balance a budget; with a repayment period of 20-plus years, student loans can feel like a yoke borrowers will never be free from. Research confirms that college debt weighs heavily on the psyche. “We think about debt as being simply money owed,” says Adam Greenberg, a behavioral economist at Bocconi University in Milan. “But people don’t mentally label each type of debt the same way.”

Greenberg authored a 2020 study that found that student loan debt is tied to lower life satisfaction in ways that other kinds of debt aren’t. Student loans are perceived straightforwardly as debt, while a mortgage is thought of as an investment. Greenberg posits student loans are perceived differently than credit card debt because credit cards don’t utilize structured payment plans like student loans — they have minimum payments, but allow consumers to keep a revolving balance indefinitely. Adding to this calculus is the fact that student loans can’t be discharged in bankruptcy like most other debts can.

A degree isn’t necessarily an asset people can enjoy immediately, unlike a mortgaged house — people with college and advanced degrees still struggle to find jobs that cover rent, other living expenses, and loan payments, at which point the value of having taken on school debt becomes frustratingly muddied.

On its own, paying off student loans again wouldn’t be such a big deal for Bryan. But compounding living costs are raising stress — a straw threatening to break the camel’s back.

For Veronica, student loan debt is delaying having a child. She also feels that her debt is foreclosing the possibility of retirement in the long term, and of taking care of her parents in the near term. “We don’t think we’re gonna retire,” she says. “I withdrew $40,000 from my 401(k) to be able to buy a house.”

Rose, who is 28 now, plans on leaving New York if she’s still living paycheck to paycheck by age 30. She doesn’t expect to pay off her student loans for decades, and her current timeline relies on the presumption that she won’t have other major expenses come up — and that she won’t have children. “It just feels like this is the way I’m gonna live forever,” she says.

There’s a sense of frustration at what could have been — a “glimpse of freedom,” as Bryan puts it — when payments were frozen and debt cancellation seemed close at hand. The benefits of the payment pause were obvious to borrowers and to the broader economic outlook, while the downsides of this long freeze aren’t so clear. Schools weren’t affected, since they already got their tuition. The federal government didn’t collapse because it stopped collecting student debt payments, and the pause had a minimal impact on inflation.

“I have family members and colleagues who are like, ‘Oh, you didn’t have to pay for so long, boohoo,’” Bryan says. “Yeah, but we really built that into our life for the last three and a half years.”

Update, October 6, 11:30 am ET: This story has been edited to redact the last name of a source to protect their privacy.