Personal finance

Will inflation be good for student loan borrowers? | Personal finance


Kathryn Anne Edwards, economist at RAND Corporation, a global nonprofit public policy think tank, says, “In theory, you can inflate debt; it is something that we do not recommend. She says borrowers might want to limit their expectations about the potentially positive effect of inflation. The value of your debt may technically be lower, but it won’t matter if your paycheck doesn’t keep up with inflation, and your other household expenses are also growing faster than your paycheck.

The impact of inflation on debt only benefits you if your salary increases

The value of your fixed rate debt only goes down if your wages also increase at a rate comparable to inflation.

As inflation continues to climb, it is unclear whether wages will rise across the board. It is possible that labor shortages and widespread employee demands for higher wages will force employers to raise wages, but that depends entirely on the industry or sector, experts say.

And if the rate of inflation exceeds the rate of wages, your ability to pay for goods and services – the purchasing power of consumers – decreases, as does your ability to repay your debts.

However, you might be more immune to some rising costs than some groups. For example, increases in health spending hit older people harder than others, and child care costs hit those with young children as opposed to those with older children.