Student loan payment resumption to impact economy minimally: study
- Student loan repayments resumed in October
- Analysis finds small expected decline in consumer spending
- Biden administration created new SAVE income-driven repayment plan
Millions of Americans have student loans and President Biden has proposed forgiving up to $20,000 of debt per borrower. (Getty Images)
maylen
(NewsNation) — The return of student loan payments will likely have only a minimal impact on the economy, according to a new analysis.
The conclusion from economists at the Federal Reserve Bank of New York is based on responses from a quarterly Survey of Consumer Expectations Household Spending Survey. The student loan borrowers surveyed said that on average, they expect to reduce their spending over the next three months by around $56 per month from their average monthly spending reported in August.
“If scaled up to the 28 million borrowers with federally-managed loans currently in forbearance, this would suggest nearly a $1.6 billion decline in monthly spending, or 0.1 percentage point of August 2023 personal consumption expenditures,” the economists wrote in a Wednesday report.
The 0.1 percentage decline in consumer spending is far less than the up to 0.8 percentage point decline that some other economic forecasters have predicted as a result of the resumption of loan repayments.
Student loan payments on federally managed loans have been paused since the start of the coronavirus pandemic in 2020. President Joe Biden had sought to institute a plan to forgive up to $20,000 in loans for borrowers, but the Supreme Court in June struck down that plan.
As a result, resumption of payments began this month.
The Federal Reserve economists note that deposits at the U.S. Treasury from the Department of Education went up after the court ruling, suggesting that “some borrowers elect(ed) to make bulk payments against their loans after learning that their loans would not be forgiven and before interest resumed.”
Biden and the Education Department have since unveiled the Saving on a Valuable Education, or SAVE, plan that replaces the Revised Pay As You Earn (REPAYE) Plan. SAVE is an income-driven repayment plan that calculates monthly payments based on a smaller portion of a borrower’s adjusted gross income and waives unpaid interest for low-income borrowers.
The Federal Reserve economists find that while some borrowers will still struggle to make payments, “we expect the potential spillover to the broader economy to be limited.”
