The headwinds for high earners are about to get worse

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How much does it take to feel flush in the US these days? Even $250,000 a year won’t get you there, according to a recent survey by and LendingClub Corp., which found that 36% of those who earn at least that much say they live paycheck to paycheck. other.

Considering that $250,000 is nearly four times the median US salary and puts you in the top 5%, it’s quite baffling that so many people say they spend everything they earn each month. (And it was a census-balanced survey; they didn’t just poll residents of high-cost areas like New York and San Francisco.)

It is even more disconcerting when you realize that most students in this category have not had to repay their student loan for more than two years. Almost everyone has taken advantage of the federal student loan moratorium, which allows borrowers to press the pause button on payments without any interest accruing.

Student loan debt is a big problem for many in this crowd. More than 32% of total federal student loan debt is held by households with incomes ranging from about $107,000 to $374,000, the highest percentage of any income group, according to the Data Initiative on education. The average amount of student debt among this group is $45,965 – also the highest of any income bracket.

For those with professional degrees or doctorates, who are common among the highest earners, the debt burden is often much higher. Student loans for MBAs total over $66,000, while law school tops $145,000 and medical school north of $201,000. Assuming the average total student debt of $82,800 for a graduate borrower means that monthly payments of about $950 per month have been suspended for almost 30 months.

No one can guess when these payments will start to come due. The Biden administration extended the moratorium in April until August 31. The president is reportedly considering canceling up to $10,000 of debt per borrower, but potentially limiting it to those earning less than $150,000 (or $300,000 for married couples).

Those earning $250,000 or more are unlikely to get a substantial discount, which means their budgets are going to get even stretched. According to the survey, more than 12% of those earning at least $250,000 say they not only live paycheck to paycheck, but are unable to pay some of their bills.

A key detail: For the 24% who said they live paycheck to paycheck, but are still able to pay all their bills, the “bills” they pay include savings that automatically come out of their check each month for things like retirement. and college plans.

Still, rising house prices are likely adding to the feeling of overstretch. More than 15% of those earning more than $250,000 said they had made a mortgage payment for a new home loan in the past 90 days, and more than 6% had made a payment for a second mortgage on a primary residence, according to the survey. Mortgage rates have jumped since the start of the year and prices have continued to soar in most regions.

So far, it doesn’t seem like this cohort is making maximum use of credit cards to compensate, even amid the higher cost of basic necessities. According to the survey, about 60% of those who earn at least $250,000 and report living paycheck to paycheck pay their account statements in full each month.

Will they continue to be so careful with credit card debt once student loan repayments are restored? A recent report from the Federal Reserve Board of Governors warned that ending forbearance could lead to worsening credit risk profiles for borrowers, but it did not examine specific income levels.

In the meantime, high earners who feel stuck should start reworking their budgets in anticipation of having to start making student loan payments again soon. If they are overburdened with fixed and essential expenses (like housing), they should compare their pre-pandemic budgets before the student loan break with their current budgets and determine how their expenses have changed and what they can do differently to account for student loan repayments, said Kevin Mahoney, a certified financial planner in Washington.

If the financial stress is due to discretionary spending, for things like travel, dining out, or social activities, then obviously those things need to be remembered to be able to make student loan repayments, which are financial obligations. .

Mahoney said the wisest decision would have been to continue putting money aside each month for student loan repayments, especially since most extensions were announced shortly before they expired. This money may be hard to come by (or you may feel like it doesn’t do much in a savings account), but it will ultimately help you avoid feeling like you’re living on a paycheck to paycheck with no bandwidth for emergencies.

More other writers at Bloomberg Opinion:

The best graduation gift? A retirement plan: Teresa Ghilarducci

Most students don’t need debt forgiveness: Matthew Yglesias

Democrats’ new agenda is to help the rich: Ramesh Ponnuru

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Alexis Leondis is a Bloomberg Opinion columnist covering personal finance. Previously, she oversaw tax coverage for Bloomberg News.

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