- Morgan Stanley look at the impact on consumption as the more than three-year long moratorium on federal student loans will come to an end soon with interest payments expected to resume October 1. This would impact the 26.6 million borrowers who have federal student loans in forbearance totalling $1.1tn or $41k/borrower.
- “In 2019, the average interest payment made on student loans by adults who had to make payments (70% of borrowers) was between $200 and $300 each month. If all borrowers in forbearance were to restart interest payments of $200 to $300/month, this will total $5.3bn to $8bn in interest payments monthly, or $64-$96bn/annually - equivalent to 0.3%-0.5% of disposable income.”
- The new income-driven payment plan, SAVE, can lower the average federal loan payment from our upper bound estimate of $300 to closer to $200/month in July 2024.
- The impact to consumer spending in 4Q23 is mitigated somewhat by the 12-month grace period implemented by the Biden Administration. “We estimate 50% of borrowers will begin making some payment in 4Q23, with a 70% pass-through to consumer spending. This results in a 0.8pp drag to real PCE growth in 4Q23. We estimate an additional 20% of borrowers could start making payments in 1Q24, resulting in a 0.3pp drag to 1Q24 consumption.”
Copyright 2024
