Millions of Americans will
start making payments again on their federal student loans, after a pandemic-era pause for over three years ended on Sunday, fanning concerns of the spillover effects on the U.S. economy. Interest began accruing on loans again on September 1 and payments came due starting Sunday.
Bigger picture: More than 40M people together owe over $1.6T in federal student loan debt. Note that the moratorium on payments had been extended multiple times and President Joe Biden's student loan forgiveness plan was
blocked by the Supreme Court. Even so, administration policies are expected to blunt the impact of repayments, such as the income-driven repayment plan aimed at low-income households. The resumption's impact on households and the economy remains uncertain, on account of the unprecedented long break. It could lower consumer spending by $9B per month, according to Oxford Economics, in turn reducing 2023 GDP growth to 1.7%, and resulting in a 0.3% decline in 2024.
"To our knowledge, there has never been a circumstance in which an entire lending market was turned off and turned back on again," said Jefferies analyst John Hecht. He added that the resumption will lead to higher delinquencies and net charge-offs, and increased loan demand, although loan origination volumes may be subdued. Discretionary spending is widely expected to take a major hit. BTIG said
results of retailers and restaurateurs will be affected, while UBS said soft goods
sales will likely decline. Keep an eye on student loan-related stocks - SoFi Technologies (
SOFI), Navient (
NAVI), Nelnet (
NNI) and SLM Corp. (
SLM).
SA commentary: While noting the risks to consumer spending, Investing Group Leader
Fear & Greed Trader pointed out that monthly payments on all types of consumer debt -
including student loans - as a percent of income is very low.
Dane Bowler said the resumption is not a dire situation, as the interest and principal burden is hitting consumers at a time when their balance sheets
look excellent.
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