When the Bill Comes Due

August 03, 2023 | Julia Sheehan, Associate Research Analyst

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Combination area and line chart shows annualized student loan payments and the pre-pandemic trend. Chart subtitle: Robust consumer spending, which has bolstered the U.S. economy this year, may by impacted by the resumption of student loan payments. Chart source: Goldman Sachs, The New York Times as of April 2023. Chart visual description: Data is monthly, from January 2017 through April 2023. Y-axis is labeled “Student Loan Payments, Annualized” and ranges from $0B to $90B. X-axis is labeled annually, from 2017 through 2023. Student Loan Payments Received by Treasury is plotted in dark green area form, and Pre-Pandemic Trend is plotted in dotted light green line overlay, beginning at September 2019. Chart data description: Payments steadily increased from 2017 (~$60B monthly) through most of 2019 (up to ~$70B monthly), with a slight increase in slope in early 2020 ($75.37B peak in March 2020). The onset of COVID marked a sharp decrease in payments, down to $46B by December 2020, $31B in December 2021, and $22B in December 2022. Latest data as of April 2023 was $16.97B. Had the pre-pandemic trend continued, April 2023 would be at $84B. Please contact us for the full dataset. End chart description. See disclosures at end of document.

The U.S. economy has proved more resilient than expected this year, buoyed by ongoing consumer strength. Labor market dynamics and pandemic-era savings have allowed consumers to continue to spend despite higher costs. Those excess savings, however, are projected to be fully depleted by the fourth quarter. On top of that, millions of Americans will soon have another monthly charge to factor into budgets, as student loan payments are set to resume in October for the first time in years.
Collectively, U.S. consumers owe $1.6 trillion in education debt, with monthly payments averaging $200–$300. The CARES Act put student loan payments on hold in 2020, saving consumers approximately $185 billion over the last three years.¹

Moreover, the pause in payments brought delinquency rates to historic lows, which helped improve borrowers’ credit scores, enabling them to take on additional debt. As a result, some consumers are now facing greater obligations that may detract from spending on goods and services. Apollo Global Management estimates that student loan payments alone could reduce consumer spending — which makes up two-thirds of U.S. GDP — by more than $100 billion per year. Whether the U.S. tips into recession remains to be seen, but evolving dynamics like the depletion of excess savings and the resumption of student loan payments could change current trajectories. We will continue to watch these factors and their impact on the macroeconomic outlook closely.

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¹Goldman Sachs via The New York Times, Student Loan Pause is Ending, With Consequences for Economy