As the American economy is struggling with high inflation and interest rates, the coming resumption of student loan payments poses yet another potential challenge, according to the Associated Press.
The suspension of federal student loan payments, which took effect at the height of the pandemic in 2020, expires late this summer. Interest will start accruing again in September. Payments will resume in October.
The Supreme Court last week struck down a Biden administration plan that would have given millions of people some relief from the return of the loan payments. The Biden plan would have canceled up to $20,000 in federal student loans for 43 million borrowers; 20 million would have had their loans erased entirely. The court ruled that the plan exceeded the government’s authority.
The restart of those payments will force many people to start paying hundreds of dollars in loans each month — money they had been spending elsewhere for the past three years. Their pullback in spending on goods and services won’t likely make a serious dent in the $26 trillion U.S. economy, the world’s largest. Any pain instead will likely be concentrated in a few industries, notably e-commerce companies, bars and restaurants, and some major retailers.
Josh Bivens, chief economist at the Economic Policy Institute think tank, suggested that the likely hit to the economy might amount to one-third of a percentage point of gross domestic product — the nation’s total output of goods and services — or about $85–90 billion a year.
Deutsche Bank analysts who follow the retail industry estimate that the resumption of the loan payments could shrink consumer spending by $14 billion a month, or an average of $305 per borrower.
Among the individual companies that could be hurt, according to the Deutsche Bank analysis, are Macy’s, Target, and Kohl’s. The largest retailer, Walmart, is thought to be insulated from major damage because of its grocery business. Dollar stores and other discounters might benefit if more financially squeezed consumers turn to bargain hunting.
