WASHINGTON–The Supreme Court’s decision to strike down President Biden’s proposal to cancel at least some student debt for tens of millions of borrowers will affect the monthly finances of millions of credit union members nationally.
In a 6-3 decision, the court ruled that a debt cancellation program of such scope would require the clear approval of Congress.
But even before the decision was handed down, analysts were already offering a forecast for what it would mean for many Americans.
During NAFCU’s annual convention in Long Beach, Calif. last week, economist Elliot Eisenberg said such a decision would add hundreds of dollars in extra payments for many Americans every month, and with the finances for many already strained, it will only add to the pressures, he said.
Nearly 20% of Population
Approximately 43-million people in the U.S., or about 17% of the population, have federal student debt, a new report notes. Of those, about 26.6 million—or about 10% of the adult population—had loans in forbearance as of the first quarter, according to the National Student Loan Data System, the Wall Street Journal reported.
Federal student loan payments have been paused since March of 2020, but with that about to end, “the hit to household cash flows as a result of the resumption could be substantial,” the Journal said, citing a Bank of America Institute analysis that estimates it might be around $180 a month for the median impacted household.
$5-8 Billion Per Month
“In a 2017 survey conducted by the Federal Reserve, the median monthly student-loan payment was $222 and the average was $393,” the Journal reported. “Estimates vary, but even on conservative expectations, borrowers are set to collectively resume paying $5 billion to $8 billion a month once the pause is lifted. Some research outfits, including J.P. Morgan and TD Cowen, place the number closer to $10 billion a month. For context, Americans collectively spend about $35 billion a month on clothing and department stores, according to data from the Census Bureau.”
According to a March 2023 analysis done by UBS Research and cited by the Journal, the average student-loan borrower is younger, more likely to be single, female and earn slightly less than the average U.S. consumer. About 62% are 39 or younger and that group owed 55% of total student debt as of 2021, according to the New York Fed and Equifax, the Journal said, adding that student-loan borrowers carry more credit-card debt and are less likely to have an emergency fund compared with the average American, according to the UBS survey.
Surge in ‘Serious Delinquency’
“Younger consumers’ year-over-year spending growth has badly lagged that of older generations so far this year, and in recent months, spending began to shrink, according to Bank of America’s analysis of its credit- and debit-card data,” the Journal stated. “What’s more, the share of credit-card loans transitioning into serious delinquency has surged most sharply over the past year for borrowers aged 18 to 29, followed by those aged 30 to 39, according to data from the New York Fed Consumer Credit Panel and Equifax.
“All of that makes it very likely that the more than 20 million consumers set to resume student loan payments will cut back on discretionary spending come September,” the report added.
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