Why Student Loan Repayments Will Result in a ‘Shock’ for Gen Z When They Resume
GO Banking Rates
April 5, 2023
No matter how the U.S. Supreme Court rules on the Biden administration’s student loan forgiveness plan, millions of Americans will soon resume paying all or part of their student debt after a pause of more than three years. That will likely cause a financial “shock” to borrowers, according to one economist — and the shock could be especially jarring to Gen Z borrowers.
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The resumption of student loan payments, which will likely come this summer, could create risks similar to the 2013 fiscal cliff, Jefferies economist Thomas Simons wrote in a note. Back then, tax increases led to reduced consumer spending.
“The end of the moratorium is going to be a shock to a significant number of household budgets,” Simons wrote. “Households have already been eating into their excess savings to maintain their preferred consumption in the face of high inflation.”
He added that it’s “very likely” most households that previously made student loan payments haven’t been saving the extra money or including the payments in their budgets.
“Households still have roughly half of the excess savings from the pandemic sitting on their balance sheets, but there is less cushion to absorb a substantial increase in outlays,” Simons wrote.
Federal student loan payments are scheduled to resume either on June 30 or 60 days after the Supreme Court issues its opinion, whichever comes first. That puts the restart date at no later than Aug. 29, Bloomberg reported. The first monthly installment would be due by the end of September.