Student-Loan Repayments Are Coming Back. Retailers Are in for a Big Shock.
Millions of Americans are due to resume student-loan payments in the coming months. The collective monthly impact on their wallets could be as big as $10 billion.
By Jinjoo Lee, The Wall Street Journal, June 16, 2023
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Around 43 million people in the U.S., some 17% of the adult population, have federal student debt. Out of those borrowers, roughly 26.6 million—or about 10% of the adult population—had loans in forbearance as of the first quarter, according to the National Student Loan Data System. This was thanks to the federal government’s suspension of payments and interest accrual starting in March 2020. That pause is ending Aug. 30, as part of the bipartisan debt-ceiling deal signed in early June…
The hit to household cash flows as a result of the resumption could be substantial: Bank of America Institute estimates it might be around $180 a month for the median impacted household. In a 2017 survey conducted by the Federal Reserve, the median monthly student-loan payment was $222 and the average was $393… Estimates vary, but even on conservative expectations, borrowers are set to collectively resume paying $5 billion to $8 billion a month once the pause is lifted. …
The average student-loan borrower is younger, more likely to be single, female and earn slightly less than the average U.S. consumer… Apparel was the category on which student-loan borrowers said they most often deferred purchases. …[end quote]
Wow, that’s a huge proportion of the adult population! I am really shocked to see this. That sudden hit to cash flow will impact household spending.
Temporary Covid bonus SNAP (food stamp) benefits ended on March 1, 2023. This removed cash flow from lower income households. The return of student-loan payments is a much larger collective wallet impact compared with the end of the pandemic-era enhanced food-stamp benefits, which took away around $3 billion of additional assistance a month.
Younger borrowers are already seeing rising deliquency in credit card debt. It’s shocking that the credit card debt of the 18-29 year old cohort is already 8% in serious delinquency – and the student loans are still in forbearance.
These same younger borrowers have higher student loans. They are likely to have lower incomes and to live in rentals whose cost has risen quickly over the past couple of years.
The quickest impact of the ending of student loan forbearance will be on stylish clothing retailers who market to Millennials and GenXers. For women, Shein and Fashion Nova, Old Navy, Victoria’s Secret, Nike and Lululemon. For men’s clothing, student-loan borrowers favored Nike, Gap, Old Navy, American Eagle Outfitters and Under Armour.
Those who use options and shorting tactics might want to move on this information. It’s not my investing “lane” but the impacts will begin to show up within the next quarter or two.
Wendy