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.
The U.S. housing market is currently experiencing a decrease in affordability due to high mortgage rates and stubbornly high prices, with affordability levels lower than during the 2006 housing bubble; however, experts do not predict a crash in the market due to a shortage of homes and a more stable lending environment.
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.
Millions of Americans may have to prioritize their student loan payments over their retirement savings, as the resumption of student debt repayments poses a challenge for workers already struggling to save for retirement due to inflation and market volatility.
Mortgage payments in the US are at their highest since the mid-1980s, making housing deeply unaffordable, but surprisingly, rising mortgage rates have not led to a decline in house prices as supply of properties has fallen almost in lockstep with demand and locked-in homeowners have invested more in fixing up their current homes, leading to a robust housing market despite the economic challenges.
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.
Some students in the UK had to cut back on food and take on debt or dip into savings due to the soaring cost of living, with rising rent and food prices being major factors. This has negatively impacted their university experience and academic performance.
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.
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.
House Republicans have advanced legislation to overturn President Joe Biden's new student loan repayment program, which lowers monthly payments and caps interest, while Biden officials promote it as a crucial tool to help Americans manage their federal student loan payments.
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 is implementing a 12-month "on ramp" to student loan repayment, protecting borrowers from consequences such as credit reporting and collections, while many student loan servicers are changing and borrowers may need to update their information. Additionally, monthly payment amounts may vary depending on the repayment plan and income-driven options.
Millions of student loan borrowers in the US are facing the challenge of resuming their loan payments after a moratorium, with some borrowers unsure of the due dates and payment amounts. Many are expected to experience financial stress and may need to cut back on spending or explore repayment options such as income-driven plans. The new SAVE plan launched by the Biden administration aims to provide affordable payments, but not all borrowers will see a decrease in their monthly payments.
Some federal student loan borrowers may have their payment due dates extended to November or December based on factors like their last payment before the pause, and recent graduates may get more time if they're still in their grace period.
The looming government shutdown may disrupt the return of student loan payments on October 1, as loan servicers struggle to handle the influx of borrowers seeking assistance.