Student Loan Payments Are Back. Now What?

Good morning,

With the start of October, student loan repayments are set to resume following a 3-year hiatus. With Consumer Credit Card Debt surpassing $1Trillion and personal savings rates dwindling to just above 0, restarting these payments right now does more than hurt the consumer, but also removes (conservatively) .5% from quarterly GDP.

Consumers Ran Through Savings

As the linked chart above shows, the additional savings boost provided through the Covid Stimulus has run dry and Americans are taking on credit card debt by the bucket load in order to stay afloat with the increased inflation of the past few years. Now we are about to add an additional $400 monthly expense in the name of student loan repayments. That’s $4800 per year, per each of the 28 million Americans with student loans that will be removed from the economy. Such a reduction in spending will be felt locally and nationally.

A Dire Crossroads

For the 28 million Americans who are set to resume their student loan payments this month, some tough decisions will be forced to be made. Where can the average consumer cut to make their payments? Between Consumer debt and student loans, which gets priority? At a larger level, will this force people to sell their houses? The “housing supply sits at roughly 46% below historical average…” -Jack Macdowell, Co-Founder of Palisades Group. If we see an uptick in housing supply, it is a near certainty that there will be a strain on the housing market as demand for housing has fallen nearly 40% since its July 2020 peak (source: https://www.huduser.gov/portal/ushmc/hd_home_sales.html)

Housing is currently being propped up nearly exclusively by an absurdly low supply.

There’s a Storm Brewing

It certainly feels like a time of weakness, in anecdotal experiences in my own house, locally in our town and state, and through the numbers that continue to shrink nationally. Combine the challenge of additional debt repayment with the debt accruing by the general population, AND the Yield Curve inversion (and the many problems it creates), and it really feels like we are on the brink of a crash.

Here’s to hoping for the best, preparing for the worst.

Have a great week!

Ryan