Student loan restart threatens US consumer spending

Following a three-year moratorium on federal student loan repayments, around 40 million borrowers across the US will resume servicing their often hefty debts in an atmosphere of already slowing consumer spending.

Why it matters

The effect is likely to be a deep strain on discretionary spending at a time when households were already cutting back. It’s not the only reason, but for many individuals and families, the effects of a few hundred dollars a month will be extremely limiting.

For brands, this is likely to be bad news if a broad swath of the US middle class begins trading down from branded products to private label.

What’s happening

• Many borrowers have big balances (often bigger if the borrower has taken on higher degrees) and the average repayment is $400 a month.
• This event won’t just affect the young, as Bloomberg’s report notes, with federal government Q1 2023 figures counting borrowers aged 35 to 49 at 14.7m and borrowers 50-61 at 6.5m.
• Many other payments – mortgage or rent, car loans, groceries – are relatively fixed, even if people are trading down in the latter category, but economists anticipate an overall drop in GDP of 0.1% versus forecasts if the moratorium had stayed in place.

Key quote

[Economically, the effect is] probably not enough to push us into a recession alone but, combined with some of the other factors going on, the other headwinds the economy’s faced … it could be the straw that breaks the camel’s back” – Cristian deRitis, deputy chief economist with Moody’s analytics, speaking to The Hill.

Sourced from Bloomberg, The Hill