United States: Student loan payments are less concerning going forward

Despite last summer’s US Supreme Court decision, the Biden administration has forgiven $153bn in student loan debt through piecemeal actions. This, combined with a new, more generous income-driven repayment plan and a yearlong grace period following the end of the pandemic-era pause on student loan payments, has reduced the amounts borrowers in the aggregate are paying back to the Department of Education.

What you will learn:

• These recent student loan actions benefit consumer spending through two channels: household net worth and cash flow. The cash-flow effect is dominant over the wealth effect, but the two combined may boost the level of real personal consumption by 0.1% or more, based on simulations of the Oxford Economics’ Global Economic Model.
• Monthly student loan payments are tracking $23bn lower than their pre-pandemic trend on an annualized basis. How much this gap will widen or narrow in the coming months remains to be seen, but the biggest wild card for the path of student loan payments – and the federal deficit – is the administration’s latest plan to forgive student loan debt.