**The Reprieve is Over: The Resumption of Student Loan Payments Looms**
Just as the American economy is grappling with high inflation and interest rates, the impending resumption of student loan payments poses yet another potential challenge.
**The End of the Suspension: Federal Student Loan Payments Will Restart**
The suspension of federal student loan payments, which was implemented at the height of the pandemic in 2020, is set to expire in late summer. Starting in September, interest will begin accruing again, and payments will resume in October.
**Supreme Court Strikes Down Loan Forgiveness Plan**
Despite hopes that their loans might be lightened, the Supreme Court recently struck down a Biden administration plan that would have provided relief to millions of borrowers. The plan aimed to cancel up to $20,000 in federal student loans for 43 million borrowers, with 20 million having their loans completely erased. However, the court ruled that the plan exceeded the government’s authority.
**Impact on Consumer Spending and the Economy**
The restart of loan payments will require many individuals to allocate hundreds of dollars each month towards their loans, money that they had been spending elsewhere for the past three years. While this shift in spending may not significantly impact the $26 trillion U.S. economy, it is expected to be felt in specific industries, particularly e-commerce companies, bars and restaurants, and certain major retailers.
**Uncertainty in an Already Uncertain Economy**
The change in spending patterns by many young adults could introduce further uncertainty into an economy already grappling with uncertainties, such as inflation, interest rate hikes, and the potential for a recession. Economists estimate that the hit to the economy from the resumption of loan payments could amount to one-third of a percentage point of gross domestic product (GDP), equating to approximately $85 billion to $90 billion annually.
**End of Pandemic Relief Programs Adds to Economic Challenges**
The suspension of student loan payments was part of the various pandemic relief programs that cushioned the economic damage caused by COVID-19. However, as these programs come to an end, they contribute to the obstacles faced by the economy.
**Potential Contraction in Consumer Spending**
Analysts from Deutsche Bank predict that the resumption of loan payments could result in a contraction of consumer spending by $14 billion per month, averaging $305 per borrower. The sectors expected to be most affected are online commerce, mail-order companies, restaurants, and bars.
**Impact on Individual Companies**
Retailers such as Macy’s, Target, and Kohl’s are projected to experience negative effects due to the end of the loan moratorium. However, Walmart, benefiting from its grocery business, is expected to be insulated from major damage. Dollar stores and discounters may even benefit as financially constrained consumers turn to bargain-hunting.
Goldman Sachs economists anticipate that the end of the loan moratorium will have a modest negative impact on the economy, reducing consumer spending growth by 0.2% this year. The dent in spending would have been halved if the Supreme Court had allowed the Biden debt forgiveness program to proceed.
**An Economy Proving Surprisingly Resilient**
Despite the challenges posed by the pandemic and subsequent economic fluctuations, the American economy has demonstrated surprising durability. Recent data shows robust economic growth and strong consumer spending. Additionally, a healthy job market with low unemployment rates suggests that the economy has outperformed predictions of an imminent recession.
Though the economy has weathered various shocks, there are ongoing concerns regarding the impact of the Federal Reserve’s rate hikes, as well as the effects of federal cutbacks, including the end of the student loan payment moratorium. These factors have the potential to introduce contractionary shocks into an economy that has defied expectations, albeit with some lingering uncertainties.