A recent survey conducted by Allianz reveals that 61% of Americans are more afraid of depleting their savings during retirement than dying, highlighting the concern over outliving one's financial means in old age.
As student loan payments resume, major retail and food chains in the US are warning investors about a potential slowdown in consumer spending, with retailers like Macy's, Target, and Ulta identified as particularly vulnerable due to their exposure to younger, low-income consumers with student loans.
The end of student loan payment forbearance could negatively impact the housing market, causing a decrease in household formations and homeownership rates as borrowers struggle to allocate their income towards student debt.
Major retailers are concerned that the resumption of federal student loan payments in October will decrease profits during the holiday season, as the pause in payments since March 2020 has given Americans more buying power.
A survey reveals that 62% of student loan borrowers in the US are considering boycotting loan payments due to doubts about affordability, with half of respondents believing a boycott could lead to total debt forgiveness, raising concerns about the risks and consequences of refusing to repay student loans.
The impending resumption of student loan payments after a three-year pause due to the pandemic is causing financial strain for borrowers, potentially leading to defaults and economic repercussions, despite some borrowers using the pause to pay down debt and improve their financial situation.
Student loan repayment resuming in the US this fall is expected to have a significant negative impact on the housing market, potentially affecting homeownership rates for at least a year, according to a poll conducted by Pulsenomics.
More Americans are struggling to keep up with car loan and credit card payments, particularly lower-income earners, as higher prices and rising borrowing costs put pressure on household budgets, signaling potential consumer stress; the situation is expected to worsen as interest rates continue to rise and paused student loan payments resume.
U.S. consumer spending increased in July, boosting the economy and reducing recession risks, but the pace is likely unsustainable as households dip into their savings and face potential challenges from student debt repayments and higher borrowing costs.
Despite economists' expectations, many student loan borrowers have already resumed making payments before the October deadline, potentially leading to a decline in consumer spending and affecting the economy as households adjust their budgets.
As part of President Biden's efforts to make student loans more manageable, the administration has created a 12-month on-ramp to repayment starting in October 2023, allowing borrowers to delay payments without negative consequences, although interest will still accumulate; however, the administration's new SAVE income-driven repayment plan may be a better option for some borrowers.
U.S. consumers have accumulated $43 billion in additional credit card debt during Q2 2022, three times the average amount since the Great Recession, and credit card interest rates have soared to over 20%, raising concerns about the impact of inflation and rising interest rates on consumers' ability to pay off their balances. However, some economists argue that higher wages are helping consumers keep pace with their debt, and the overall rate of charge-offs remains low. Nonetheless, the combination of spent-down pandemic savings and the resumption of federal student loan payments could pose challenges for lower-income borrowers and hinder consumer spending.
Consumer spending in the US has supported the economy despite concerns of a recession, but rising interest rates, the resumption of student loan payments, and dwindling savings are predicted to put pressure on consumers and potentially lead to a shrinking of personal consumption.
The resumption of student loan payments in October will add to the financial burden of Gen Z and millennial Americans looking to buy a home, further squeezing their ability to afford housing.
Borrowers with federal student debt can use their remaining funds in a 529 college savings plan to pay off up to $10,000 of their debt, providing a potentially appealing option as student loan bills are set to resume in October.
The resumption of student loan payments in October could have a substantial impact on consumer spending and the economy, potentially subtracting 0.8 percentage points from consumer spending growth in the fourth quarter and putting pressure on retailers during the crucial holiday shopping season; however, the full extent of the impact remains uncertain due to factors such as income-based repayment programs, the one-year grace period for missed payments, and the potential for borrowers to prioritize other expenses over loan repayments.
Women, who hold two-thirds of the $1.7 trillion federal student loan debt in the US, face a greater struggle with loan repayment due to lower earnings and the gender pay gap, which will become more evident as borrowers resume loan repayments after a pandemic pause, exacerbating their financial burden.
Borrowers should prepare for the resumption of student loan payments by exploring repayment options, such as deferments and income-driven plans, as well as utilizing resources like the federal loan calculator and financial aid administrators.
The Biden administration has introduced a new federal student loan repayment plan called SAVE (Saving on a Valuable Education) that calculates monthly payments based on a borrower's income and family size, and offers forgiveness after 10 years of payments.
