Student loan bills resume: Ryan Moran, a nurse in Jacksonville, Florida, has not considered his federal student loans for several years. This month, however, he is scrambling to find room in his budget for a $500 monthly bill.
He and his wife, Amelia, intend to eat out less and forego their favorite football games. His food costs will also need to decrease.
“And it’s not just consumption that’s decreasing,” said Moran, who was 26 years old. Increasing monthly obligations force me to work extra hours, taking time away from my family.
Sunday marks the end of the pandemic-era suspension on federal student loan payments, leaving as many as 40 million Americans on the hook for a new monthly bill they haven’t had to pay in more than three years.
As there is no precedent for debtors to receive such a lengthy break from their loan payments, economists caution that the impact on households and the economy is largely uncertain. However, as the Biden administration accelerates the repayment of more than $1.7 trillion in federal student loan debt, retailers and lenders are bracing for a blow.
American households will receive their first bills during a particularly volatile time, with interest rates at their highest level in decades, employees on strike across the country, and a government shutdown looming.
Mark Zandi, chief economist at Moody’s Analytics, predicts that the economy will struggle in the fourth quarter due in large part to the end of the moratorium on student loan payments.
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Student loan bills resume for 40 million Americans
Due to the resumption of student loan payments, the financial services firm Jefferies warns that “there could be a significant risk to consumer spending in the near future.” It recently surveyed approximately 600 consumers with student debt and discovered that half are “very concerned” about meeting all of their expenses.
The survey revealed that roughly 70% of borrowers intend to postpone expensive purchases in October. Meanwhile, many individuals with student debt plan to cut back their spending on clothing, travel and food.
“As the holiday season approaches, this will be an additional drag on retail spending,” said Columbia Business School professor Brett House.
The Biden administration had intended to ease the transition back to loan payments by forgiving up to $20,000 in student debt for many borrowers, but in June the Supreme Court blocked this policy.
President Joe Biden is pursing an alternative method to cancel people’s debt, but the procedure is anticipated to be lengthy.
Scott Mushkin, founder and chief executive officer of R5 Capital, a consumer research consulting firm, estimates that between $7 billion and $8 billion per month will be redirected to student loan payments beginning in October.
“It’s definitely a challenge,” Mushkin said, noting that retailers who cater to educated consumers are at the greatest risk.
In August, Macy’s CEO Jeff Gennette discussed student loans during the company’s earnings call.
“I believe there will be some headwinds in the near future, particularly regarding student loans and the expiration of loan forgiveness,” Genette stated.
Moreover, during Target’s most recent earnings call, CFO Michael Fiddelke stated, “The upcoming resumption of student loan repayments will place additional strain on the budgets of tens of millions of households that are already struggling.”
‘The payment shocks will be significant’
According to Liz Pagel, senior vice president and head of TransUnion’s consumer lending division, “the payment shocks will be significant” for both borrowers and lenders.
Many student loan borrowers have taken on additional debt during the payment halt, according to a recent study by the credit reporting company. It was discovered that nearly a third of individuals with student debt carried a balance on a new retail credit card within the past three years. Approximately 15% obtained a personal loan.
Pagel stated, “These additional credit products entail additional monthly payments, which may present additional obstacles.” The average monthly student loan payment is approximately $350, but at least 10% of borrowers owe more than $800.
More than half of student loan borrowers now have higher monthly debt-related expenses than they did before the suspension on bills began in March 2020, according to a study by the Consumer Financial Protection Bureau.
The CFPB reports that more than 1 in 13 borrowers are currently delinquent on their other payments.
In a previous interview, Kentia Elbaum, a spokesperson for the CFPB, stated, “These borrowers may not be able to make payments on their student loans if they are already delinquent on their credit cards or auto loans.”
