Los Angeles Times He’s now scrambling to find a way to pay his $500 monthly bill. Also, his grocery bill will need to be reduced. The increased monthly payment means that I will have to work longer hours, which takes time away from my children. “
The pandemic-era pause on federal student loan payments ends Sunday, leaving as many as 40 million Americans on the hook for a new monthly bill they haven’t needed to make in more than three years.
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Economists caution that the impact on households and the economy remains largely uncertain, as there is little precedent for borrowers getting such a long break from their loan bills. But as the Biden administration ramps up repayment of the more than $1.7 trillion in federal student loan debt, retailers and lenders are bracing for a hit.
American households will get their first bills during an especially volatile period, with the highest interest rates in decades, workers on strike across the country and a looming government shutdown.
“The economy will struggle in the fourth quarter, in meaningful part due to the end of the student loan payment moratorium,” said Mark Zandi, chief economist at Moody’s Analytics.
‘Additional pressure on already strained budgets’
Financial services firm Jefferies is warning that “there could be a significant risk to consumer spending ahead,” because of the resumption of student loan payments. It recently surveyed about 600 consumers with student debt, finding that half of borrowers are “very concerned” about meeting all of their expenses.
Around 70% of borrowers plan to postpone big-ticket purchases come October, its poll found. Meanwhile, many people with student debt plan to cut back their spending on clothing, travel and food.
“As we go into the holiday season, this will be an extra drag on retail spending,” said Brett House, a professor at Columbia Business School.
The Biden administration had hoped to ease the transition back to loan payments by forgiving up to $20,000 in student debt for many borrowers, but the Supreme Court blocked that policy in June.
President Joe Biden is pursuing another path to cancel people’s debt, but it’s expected to be a lengthy process.
Scott Mushkin, founder and CEO of R5 Capital, a consumer research consulting firm, estimates that starting in October, around $7 billion to $8 billion per month will be reallocated to student loan payments.
“It’s definitely a challenge,” Mushkin said, pointing out that retailers that cater to educated consumers are most at risk.
Macy’s Herald Square store in New York is shown on Aug. 21, 2023.
View Press | Corbis News | Getty Images
Macy’s CEO Jeff Gennette mentioned student loans in the company’s earnings call in August.
“I think there are some headwinds coming, particularly with student loan
, that expiration of the loan forgiveness,” Gennette said.
And during Target’s most recent earnings call, CFO Michael Fiddelke said that “the upcoming resumption of student loan repayments will put additional pressure on the already strained budgets of tens of millions of households. “
‘The payment shocks will be significant’
“The payment shocks will be significant” for borrowers and lenders, said Liz Pagel, senior vice president and head of TransUnion’s consumer lending business.
Many student loan borrowers have taken on additional debt during the payment pause, according to a recent study by the credit reporting company. It found that nearly a third (33%) of those with student debt had taken out a retail credit card in the past three years. Pagel explained that while the average student loan bill is around $350 a month, at least 10% of borrowers have a payment over $700.00. At least 10% of borrowers pay more than $700.00 per month for their typical student loan.