Student loan payments could be $18 billion each month once the freeze comes to an end.
Student Loan Payments Are Expected Resume As Part Of President Biden’s Debt Deal
President Joe Biden and House Speaker Kevin McCarthy have come to terms on lifting the country’s debt ceiling, they also put tens of millions of Americans back on the hook for their debt.
On September 1, federal student loans will resume following a three-year pause that began during the pandemic.
Moreover, the South Arkansas Sun reported that the Department of Education also states that by October payments will also start again.
With around 45 million Americans holding student debt owing an average of $393 per month, US consumers could be affected by the $18 billion monthly, according to investment banking and capital markets firm Jefferies.
The firm believes many households will scale back spending to contend with this “student loan cliff,” which could potentially impact the economy as well.
What Does This Mean For Borrowers?
Many Americans are already living paycheck to paycheck amid high inflation and rising interest rates without adding student debt to the mix.
Most American household debts hit a record $17 trillion in the first quarter of the year while credit card balances are surging. Student loan borrowers may have no other choice than to pull back on purchases so they can afford their monthly payments or risk accruing interest and adding to their already large pile of debt.
Moneywise reported that Jefferies compares this to the 2013 fiscal cliff when tax boosts triggered a plunge in consumer spending. The firm wrote in a report speculating on this procedure back in April that the additional risk to overall economic growth is significant not to mention ill-timed.
Jefferies also forecasts that GDP growth will begin to decline in the third quarter of 2023 and may not recover until the fourth quarter of 2024.
A separate report from JPMorgan forecasts the end of student loan forbearance will cut yearly disposable personal income by $38 billion.