The end of the pandemic-era grace period is yet another pressure on US households already reeling from inflation, high interest rates and record credit card debt. Economists say the billions of dollars directed toward monthly loan payments could further cool consumer spending, which has long been a bright spot for the U.S. economy.
The timing is particularly tough for retailers gearing up for the all-important holiday season. Investment bank Jefferies estimates that new student loan payments reached $18 billion a month, or 3% of the $686 billion spent by Americans on retail and food service in May, according to Census Bureau estimates. Then we make a trial calculation.
Department stores and specialty retailers will be hit hardest, experts say, as consumers abandon new clothing and electronics or switch to big box and discount stores. Discretionary spending of all kinds, from dining out to streaming services to travel, will also be hit.
“This is a big blow to most people’s budgets,” said Katie Thomas, who studies the retail market at the Kearney Institute for Consumer Studies think tank. It just means that people are mentally removing it from their lives.” budget. ”
The Biden administration last summer announced new regulations to ease the burden of student loan debt, with the Department of Education waiving $10,000 to $20,000 of federally owned student loans and a new income-based plan to cut monthly balances. Created repayment plans and allowed borrowers who worked on student loans to pay back. Earn more credit towards loan forgiveness at your nonprofit or government service.
Six Republican-majority states have sued Biden to block the plan. The Supreme Court is scheduled to rule on this case, Biden vs. Nebraskain the next few days.
Reopening payments could put some consumers in financial trouble, or at least force them to rethink their lifestyles. Jeffries said his average monthly payment is $393.
David Sharpenstein plans to move to a cheaper location to meet his $600 monthly payment. “I was literally looking for a new apartment to stay within my budget,” he said.
The Pittsburgh-based graphic designer, 40, also plans to cut back on retirement savings and stop eating out. He still owes $36,000 of the $60,000 loan he took out from 2003-2009 for his Western Kentucky degree.
“The bottom line is that any resumption of student loan payments could be a major blow to household savings and a further drag on U.S. consumption,” said Claire Lee, vice president and senior analyst at Moody’s Credit Ratings Service. is high,” he said.
Thomas expects more consumers to switch to big box stores, discount chains and off-price retailers. Thomas added that shoppers may also cut more on discretionary spending such as home improvement and furniture.
Sherry Cohan, professor of retail at Syracuse University, predicts that department stores and specialty retailers will be hit hardest as millennials spend less on clothing and accessories at mid-range stores. are doing.
“Retailers that have been focusing on fashion in the discount space may actually be benefiting from that,” Cohan said, citing apparel investors Target and Walmart.
Since the pandemic began, consumer spending on apparel and footwear and furniture and home décor has outperformed market trends by 13% and 6%, respectively, according to Moody’s research.
October is often the time when consumers start holiday shopping. Cohan said the start date is getting earlier and earlier, and consumers facing loan payments in the fall may start planning even earlier.
Retailers have already finished ordering for the holidays, making inventory planning difficult. But BMO Capital Markets analyst Simeon Siegel doesn’t think companies are too upset by the news. Consumers see holiday shopping as a necessity and are looking for ways to make it happen while maximizing their budgets.
Siegel is no exception this year.
“U.S. consumers are proving to be perhaps too resilient than they need to be, and they generally face many obstacles, and the suspension of student loans feels like one of them,” he said. rice field. “But I don’t know that companies are realizing that deadline is approaching and starting to panic.”
Data suggests that many of those who have to resume payments have more resources. Nearly 40% of monthly payments were made by high-income borrowers before the pandemic, according to a Brookings Institution study.
The reason, according to Adam Rooney, a professor at the University of Utah who helped conduct the Brookings study, is that individuals such as doctors and lawyers who take out loans to get advanced degrees often have the highest incomes. and therefore have the funds to pay for it. Less wealthy individuals often enroll in programs that link monthly payments to a portion of their monthly income.
But even then, many borrowers like Mr. Thurmond, 42, remain, seeking jobs to help vault themselves into the middle class or stay in the middle class for degrees. I took out a loan to
When Thurmond started attending the University of Arkansas-Fort Smith, he was well into his 30s, married, and had a stepdaughter in grade school. He set a good example for her and said she wanted to enter a higher paying career.
Thurmond graduated soon after the student-loan suspension began, and after many years working in restaurants and sales, he got a job at a human resources consulting firm.
He and his wife used the money they saved by deferring loan repayments to buy a more reliable car and save for their daughter, who will start college in August. Thurmond said he will rely on his savings to pay for any remaining expenses after receiving the scholarship, so he can finish school without going into debt.
“We told the kid that he could do whatever he wanted in this life,” he said. we are suffering ”
Now, to earn that extra $460 a month, he works side jobs, sings in cover bands that play at local bars and festivals, and does freelance corporate management work.
“I would like to have weekends off, but I also want to be able to pay for college,” he said.