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Economists predict that the end of the student loan repayment moratorium will have little to no effect on the overall economy. They are probably right. That misses considering the ill effects on individual student-loan borrowers. Adding back a student loan payment on top of other household bills such as credit cards and car loans for millions of borrowers can’t help but affect individual people’s situations.

Doing their best to survive inflation in the face of higher rents and interest rates on credit cards, now many people may have to decide what not to buy and maybe who not to pay that month. Mark Zandi, chief economist at Moody’s Analytics, estimates the average monthly student loan payment at $250, pulling $5 billion out of the economy every month. Other economists calculate it much higher. Deutsche Bank, for example, says monthly payments will average $305 and yank $14 billion monthly out of the economy. Who is right? It doesn’t matter. Take billions in spending power away and somebody or something gets less money.

Both the Moody’s or Deutsche Bank prediction drags down consumer spending especially among specific demographics. Millennials and Generations Y and Z, who carry most of the student-loan debt, will have to reallocate an average of 6.5 percent of their incomes to repay their student loans estimates a Collage Group survey of 4,149 people planning on cutting their spending.

Exacerbating potential problems are credit cards with credit-card 30-59 day delinquencies increasing to 8.9 percent in August, according to VantageScore. Many Gen Z and Gen Y consumers already must rely on credit cards for daily living. MacKinnon says, “When we looked at generational approaches to financial downturns, we found that younger Americans — those more likely to be impacted by student loans — are more likely to buy less apparel, beauty and skin care products and alcohol. They also plan to shift to cheaper brands for groceries and home care like cleaning and laundry.”

That adjustment would have a minimal effect on businesses that sell groceries and home care products. Retailers who rely on younger consumers for a larger percentage of their business are more at risk. Macy’s, American Eagle Outfitters, Gap, citing a decline in their sales this year, warn that middle and lower-income consumers, who represent a significant percentage of their business, could suck some of the $10 billion monthly out of those companies’ bottom lines if they spend money on student loans instead of with them reports Gariela Barko in July 12, 2023 article in modernretail.co. I know, that doesn’t come even close to the figures from Moody’s and Deutsche Bank, but that’s what those companies claim.

They will probably survive, except maybe Macy’s, already reporting an $84 million business decline year over year, exacerbated even more by a hefty increase in their in-store credit-card delinquencies. All that is unrelated to student loan repayment issues. Losing the business that younger consumers provide could be the proverbial straw on the camel’s back and push them into bankruptcy.

Less able to withstand losing significant business are some small and startup businesses who rely on younger consumers. Serena Rathi, founder of the Indian pantry company Droosh, warns in the modenretail.co article that the return of student loan payments might negatively affect her company’s growth as startups already have to deal with high customer acquisition costs and production costs. She says “This poses a challenge for food brands like Droosh, as we rely on consumer spending. We are adopting new strategies to cater to changing consumer priorities and tighter budgets.”

Especially hard hit will be business that rely on discretionary spending such as restaurants, fast food businesses, and bars. If people stop spending five dollars a day for a cup of coffee at their neighborhood coffee shop, or $25 a week, it provides $100 extra a month that could pay for 40 percent of that average student loan bill of $250. But if 50 percent of their customers did that, it would measurably hurt that store’s income. If half their customers forgo Papa John’s Pizza once a week, in a month saving maybe $80 for themselves, Papa John’s will notice. If they don’t go to Target to buy things they don’t really need, and save who knows how much, Target would survive but earn a lower profit. Stay home on Friday night rather than go to a neighborhood bar and spend $100 on drinks, and save $400 for the month, and the local bar takes a big hit if too many of their customers show such thrift. Should it become a general rule rather than only with the more thrifty, restaurants, McDonalds, Starbucks, and neighborhood bars lose money some enough to force them to shut their doors sending employees into unemployment. Major companies can survive, but small restaurants, mom and pops, neighborhood stores, and local bars face financial peril.

Car loans face even more trouble. The average monthly payment for all borrowers for a new car loan is $725 and $586 for a used car loan. That’s the average for all borrowers. Lower credit scores ramp payments even higher. For example, for borrowers with a FICO score of 600 to 660, a new car payment averages $765 and a used car payment $529, $40 and $13 respectively higher than the overall average, and $35 and $27 respectively higher monthly than for a borrower with a 781 to 850 credit score. What might those folks do when their student loan payments make their car payments unaffordable?

Sixty-plus day delinquent car loan delinquencies stand at almost 7 percent for non-prime borrowers, 300-660 FICO, reports Equifax. Compare that to 4.89 percent a year earlier. Add student-loan repayment to their debt load and the cautionary prospect grows.

Not everyone will be so diligent that they cut way back on discretionary spending. Those of the less diligent group will have to decide who doesn’t get paid that month. The effects ripple out like when a stone drops into the water. If their car is repossessed and they can’t get to work, if their landlord evicts for nonpayment of rent, the ill effects ripple farther and father and unpredictably.

We can only surmise the eventual outcomes for individual student-loan borrowers, for auto finance companies, for rental owners, and for small businesses. In a situation where many people cut back to pay for their student loans, the effects on individuals, landlords, and businesses pose foreseeable problems.

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