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Newsweek
5 days ago
- Business
- Newsweek
Student Loan Update: Gen Z Hit With Highest Payments
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. Millions of Americans with federal student loans have seen a sharp rise in monthly payments, with Gen Z borrowers now facing the steepest costs. New survey data from Empower reported that Gen Z participants pay an average of $526 per month toward student loans, significantly above the overall average payment of $284 for all age groups. The findings come as borrowers respond to the end of pandemic-era payment relief and major legislative changes in 2025 that eliminated income-driven repayment options, increasing financial strain for the newest generation in the workforce. Why It Matters The surge in loan payments for Gen Z is reshaping the financial futures of millions of young Americans. With nearly one-third of all borrowers experiencing increased monthly payments in 2025, more than half (56 percent) say their student loan obligations limit their ability to save or invest. Almost half delay major life milestones like buying a home or planning for retirement. Harvard graduates listen to speakers during the commencement ceremony in Harvard Yard on May 29, 2025, in Cambridge, Massachusetts. Harvard graduates listen to speakers during the commencement ceremony in Harvard Yard on May 29, 2025, in Cambridge, Massachusetts. Libby O'Neill/Getty Images What To Know While the average student loan payment is $284, Gen Z was paying substantially more, with an average of $526 each month, according to the Empower survey of more than 400 student loan borrowers. "Gen Z is facing the highest student loan payments largely due to the interest rates on their loans," Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek. "Over the years, those rates have steadily climbed, and this generation is bearing the brunt of that increase. As a result, their monthly payments are significantly higher than those of previous borrowers." Across all borrowers surveyed, 34 percent said they were paying $200 or more per month. The added stress has not only affected finances but also mental health, with 59 percent of borrowers reporting anxiety related to their debt. And borrowers are not always prioritizing their student loan debt, as 54 percent said they prioritize other types of debt, like credit cards and car loans. The burden on Gen Z has grown in the wake of the One Big Beautiful Bill Act signed by President Donald Trump that removed the income-driven repayment plans established during President Joe Biden's administration. Under the new law, available repayment options provide less relief for those earning lower incomes, especially younger borrowers just starting their careers. The end of the pandemic-era forbearance and stricter repayment requirements have produced heightened monthly payments, with substantial repercussions for budgeting and debt prioritization among Gen Z and millennials. Collectively, Americans now owe more than $1.7 trillion in student loan debt, with balances having increased sixfold since 2003. As of 2024, 42.7 million Americans held federal student loans, and a significant portion are delinquent on their payments. As loan repayment resumed, only 22 percent of Gen Z borrowers felt confident about paying back their student loans, Empower found. Half of all borrowers contributed less to savings or retirement accounts as a result of their debt. Additionally, the lingering debt has led 42 percent of borrowers to wish they had chosen a different major or school, and 57 percent now say they regret their level of indebtedness. "Long-term, this is going to delay major milestones: starting families, buying homes and climbing the career ladder," Thompson said. "Many will feel pressured to stay with companies that offer student loan repayment perks, curbing their upward mobility and locking them into jobs they might otherwise leave." What People Are Saying Rebecca Rickert, head of communications and consumer insights at Empower, told Newsweek: "When post-grads are spending over $500 a month on loan payments, it can push other financial priorities like emergency savings or homeownership down the list. This is often coupled with more reliance on credit, and later entry into financial independence." Leslie Silva, principal attorney with McCall Sweeney & Silva P.C and a student loan expert, told Newsweek: "The current student loan system, and the changes in the new domestic policy bill, do nothing to help borrowers alleviate the burden of the cost of higher education. Half of millennial and Gen X borrowers have suffered delays in other major financial decisions due to student loan debt. The new bill places limits on what parents and borrowers can apply for to fund higher education. While some hope that these limits force institutions to lower their costs, that is a very unlikely outcome." Kevin Thompson, CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: "The current student loan system, in my opinion, was designed to keep borrowers tied to the workforce. This wasn't by accident, it was by design. By saddling young people with debt early, the system ensures a steady flow of labor from a group that must keep earning just to stay afloat." Alex Beene, a financial literacy instructor at the University of Tennessee at Martin, told Newsweek: "They [Gen Z] enrolled and completed college at a time when the cost of tuition and housing had risen dramatically, and, on top of those elevated prices, those who attended in the last few years have had to take out loans with higher interest rates. The result is higher monthly payments that are creating real hardship for some borrowers who are just getting started in their careers." What Happens Next Borrowers previously enrolled in income-driven plans face a transition period of at least one year and, starting July 2026 to July 2028, will have select new repayment arrangements as the latest legislation takes effect. Gen Z and other borrowers are likely to face ongoing financial strain, delayed major life decisions, and an increasing demand for financial guidance amidst the rapidly changing student loan policy landscape. Silva said that moving forward, students and parents should expect to pay more out of pocket or rely more on private loan companies as the changes take effect. "We can expect to see a resurgence in private student loans forcing new student borrowers into even more debt at higher interest rates. Private student loan companies do not have a limit on applicable interest rates, whereas federal student loans do," Silva said. And the more debt student borrowers have, the longer it will take them to buy homes or contribute to retirement plans, Silva added. "It is possible we could see more support from the institutions themselves, but there has not been much evidence to support a decrease in the cost of higher education," Silva said.
Newsweek
05-06-2025
- Business
- Newsweek
Student Loan Update: Borrowers Catch a Break as Interest Rates Drop
Based on facts, either observed and verified firsthand by the reporter, or reported and verified from knowledgeable sources. Newsweek AI is in beta. Translations may contain inaccuracies—please refer to the original content. The U.S. Department of Education announced a decrease in federal student loan interest rates for the first time in five years, easing financial pressure for upcoming borrowers. For loans disbursed between July 1, 2025, and June 30, 2026, undergraduate rates will be set at 6.39 percent, a decline from last year's 6.53 percent. Rates for graduate students and parent borrowers have also fallen, the Department confirmed at the end of May. "In a world where everything keeps getting more expensive, I'll take any win we can get," one expert told Newsweek. Why It Matters The rate cuts provide tangible, if modest, relief to millions of Americans heading to college or graduate school who face rising education costs and mounting debt. In a year marked by inflation and economic uncertainty, the lower rates could help families manage the burden of financing higher education. Amid renewed student loan collections and increased credit stress for delinquent borrowers, a reduction in future interest charges represents a crucial adjustment for American households. Harvard graduates celebrate their school's accomplishments in Harvard Yard on May 29, 2025 in Cambridge, Massachusetts. Harvard graduates celebrate their school's accomplishments in Harvard Yard on May 29, 2025 in Cambridge, Massachusetts. Libby O'Neill/Getty Images What To Know New Rates for 2025-2026 The Department of Education set new fixed interest rates for federal student loans based on the May 2025 auction of 10-year Treasury notes, which produced a yield of 4.342 percent. For loans first disbursed between July 1, 2025, and June 30, 2026: Direct Subsidized and Unsubsidized Loans (Undergraduates): 6.39 percent 6.39 percent Direct Unsubsidized Loans (Graduate/Professional): 7.94 percent 7.94 percent Direct PLUS Loans (Parents and Graduates): 8.94 percent These rates are down 0.14 percentage points across all categories compared to the previous year—marking the first reduction since 2020. In practice, borrowers with a $12,500 undergraduate loan will save approximately $100 over 10 years with the new rates, experts say. "Not huge, but hey, better than nothing," Michael Ryan, a finance expert and the founder of told Newsweek. "The catch? This only applies to new loans starting this fall. Your existing loans? Still stuck at their original rates." How Rates Are Determined Federal student loan interest rates are set annually, based on a statutory formula linked to the 10-year Treasury note yield plus a fixed add-on determined by loan type. Each loan, once disbursed, retains its rate for its full term, according to the Department of Education. The 2025 decline followed a lower Treasury yield, which reflected changes in investor sentiment and broader economic conditions over the preceding year. Federal vs. Private Loans Student financial aid advisors continue to recommend federal loans over private alternatives due to their relatively lower interest rates and flexible repayment terms, including options like income-driven repayment, forbearance, and deferment. However, pending Congressional proposals could change key features of federal lending, such as borrowing limits and repayment options, creating uncertainty for future borrowers. Rising Pressure on Borrowers The news comes as federal student loan collections resumed after an extended pandemic pause. As of May 2025, only 38 percent of federal loan borrowers were current on payments. More than 5 million have not made a payment in over a year, and 4 million were in late-stage delinquency. The Department of Education stated it will restart involuntary collections, such as wage garnishment and Treasury offsets, targeting those in default. Credit Score Implications Borrowers who missed payments since collections resumed have seen steep declines in credit scores—more than 100 points for 2.2 million people from January to March 2025, according to the Federal Reserve Bank of New York. Dropping into lower credit tiers can make it harder and more expensive to secure loans, buy homes, or access credit for large purchases. Legislative Uncertainty Legislative proposals under consideration in Congress could alter borrowing limits, eligibility, and repayment plan structure, potentially making federal loans less advantageous in the future. As a result, borrowers are urged to stay informed about changes and to carefully consider loan products available each academic year. Newsweek reached out to the Department of Education via email. "Don't get too comfortable, rates could easily bounce back up next year depending on what the economy does," Ryan said. What People Are Saying Kevin Thompson, the CEO of 9i Capital Group and the host of the 9innings podcast, told Newsweek: "A Fed Funds cut of 100 basis points has allowed interest rates on the 10-year note to come down a smidge. Now we know that the Fed truly does not impact the longer end of the bond curve without artificially buying mortgages or lowering overall rates through open market operations, yet the Fed rate cut had a somewhat minor impact to help bring down student loan financing cost." Drew Powers, the founder of Illinois-based Powers Financial Group, told Newsweek: "Since interest rates on student loans have gone down, we know 10-year Treasury yields have fallen, and that is because Treasury prices have risen due to high demand. The conditions that put Treasuries in high demand can be economic uncertainty such as tariffs, trade imbalances, and stock market instability. So, in a roundabout way, the current economic storm is an unexpected boon for student loan borrowers." Michael Ryan, a finance expert and the founder of told Newsweek: "It's not life-changing money, but it's something. In a world where everything keeps getting more expensive, I'll take any win we can get. Just remember, borrow only what you absolutely need. That 'extra' loan money always seems tempting until you're paying it back later." Alex Beene, a financial literacy instructor for the University of Tennessee at Martin, told Newsweek: "The interest rate drop for undergraduate student loans is a modest one, falling to 6.39 percent. Still every point downard can add up to hundreds or even thousands of dollars saved over time depending on the size of the loan. While this is good news, student loan borrowers should remember this drop shouldn't be taken as encouragement to acquire more student debt at lower rates." What Happens Next The newly announced interest rates will apply to federal student loans disbursed from July 1, 2025, through June 30, 2026. However, some analysts say for the average borrower, the new rates will not make a significant impact. "This won't impact borrowers materially as rates are still north of 6 percent once you factor in the add-on of 2.05 percent for subsidized loans or the 3.6 percent for unsubsidized loans," Thompson said. The Department of Education has indicated that further guidance on repayment, delinquency assistance, and upcoming legislative changes will be provided on and through outreach campaigns over the coming months. "Borrowers should truly understand that loan forgiveness is out of the cards moving forward and any loan that is taken out will need to be repaid in full, or you may face disruptions in regard to future borrowing down the line," Thompson said.
