One of the greatest financial burdens American families face is that of college tuition. The average total cost of a 4-year, in-state public university can easily exceed $100,000 (which doesn’t include all the ancillary expenses such as books, housing etc.) This type of financial commitment is overwhelming to most parents, but many – if able – want to provide their child with a clean slate/head start as they begin their professional careers. In reality though, tens of millions of Americans graduate with student debt –with the average borrower facing $30,000 in loans upon graduating.
Borrowers got a break in March 2020 when then President Donald Trump implemented student loan forbearance – a program in which borrowers could suspend payments without the risk of defaulting on their loans – as COVID took hold. The program was implemented to alleviate some of the financial burden placed on Americans due to the unknowns of the pandemic and its impact on our economy. Then, earlier this year, after the program had been extended on nine separate occasions, President Joe Biden proposed legislation that would have cancelled $20,000 in student loans per borrower. The announcement of this proposed legislation garnered wide-ranging reactions, from praise to anger.
Regardless of political views and the principle of having to pay back borrowed money, the Supreme Court ruled on June 30th to block President Biden’s student debt cancellation plan. As a result, interest will start accruing on loans beginning September 1st (for the first time in over three years), with payments beginning the following month! Approximately 44 million people have federal student loans, with the average monthly payment totaling more than $300. With this monthly expense affecting so many, it begs the question if this will have a meaningful impact on the economy over the next 12 months. That is yet to be determined.
So, are 44 million people prepared for this to become part of their monthly budget again? Hindsight is 20/20, but a step you should have considered taking (from a behavioral standpoint) during the last three years was to act like the payments were never suspended. You could have used those dollars to increase your emergency fund or pay off other debt. Human beings are creatures of habit, and for the past 36 months if you were directing those “student loan payments” to better your financial position (and not to use those dollars to increase your debt burden via car loans, credit card usage, etc.), come October, no major change in mindset would be needed. However, chances are many did not act in such a manner and in a couple of months, will be faced with a harsh reality.
Our advisors at LeConte spend a tremendous amount of time and effort understanding our clients’ behaviors, biases, and improving on weakness while strengthening strengths. The goal of our firm is to give our clients the greatest chance to achieve their life goals, and behavior is a crucial aspect of that.
If you would like to know more about how we could serve you, please give us a call at 865-379-8200.
