Borrowers are reassessing their budgets as student loan payments resume after pandemic pause

Millions of Americans must start repaying their federal student loans again in October, with monthly payments averaging hundreds of dollars. To get ready, borrowers are cutting expenses, taking on additional work, and looking for options to reduce their monthly payments.

Megan McClelland, 38, said she has started asking for October shifts with a catering company and a winery to help supplement her income.

McClelland’s main job is as a counselor at Petaluma High School in California. During the more than three years payments were suspended because of the pandemic, she paid off her car loan and was able to save for the first time. She’ll put the $235 she was spending on her car payment toward her student loan, but that still leaves another $270 or so she’ll have to reallocate or earn.

“It had been a huge relief the past few years to not have that financial burden,” she said. “In the next months, I’m looking to see where I can scale back in my budget. Probably less going out to eat, and more picking up side gigs.”

Justin Cole, 35, of Little Rock, Arkansas, said he doesn’t know how he’s going to come up with the $166 a month he’ll owe starting in October. That’s the estimated payment on his roughly $19,000 of loans from paying for college more than 10 years ago.

Cole works the front office at a medical practice, checking in patients, handling records and managing payment collection. Some of his other debt comes from medical expenses after a car accident early in the pandemic.

“If those loans were forgiven, I could finally work on getting my credit up and actually saving money for once,” he said. “If they were forgiven out of the blue, I’d be ecstatic.”

The Supreme Court in July rejected a plan by President Joe Biden’s administration to wipe away $400 billion in student loan debt.

For now, Cole has applied for adjustments to his payments based on both the new SAVE plan and prior income-driven repayment options, which are listed as processing and “in review” on his account. The SAVE, or “Saving on a Valuable Education,” plan allows borrowers to make lower payments based on a percentage of their discretionary income.

His major household expenses are “rent, car payments, groceries, and utilities — the same as everybody else,” he said.

Not yet clear is how millions of people suddenly having less discretionary income might affect the economy.

On an earnings call last month, the chief financial officer of Target said that student loan payments restarting will “put additional pressure on the already-strained budgets of tens of millions of households,” a sentiment echoed by the financial chiefs of Best Buy and other retailers.

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