Monday, October 16, 2023
It could be time to review your budget. For most of the pandemic, Uncle Sam figured out ways to keep Americans spending.
You probably remember. The stimulus packages kept spending strong, companies happy, employment high, and interest rates low. It was the opposite of what would happen in a recession.
But we’re now seeing a key sign that the “easy money era” is finished. Starting this month, student loan payments resume for almost 27 million borrowers.
According to the Federal Reserve Bank of New York, the average student loan monthly payment is about $400. Reintroducing that kind of payment means many consumers will need to make tough financial choices because they haven’t had to worry about student loans for a while. I’ve read how some analysts think more people could fall behind on other debt payments as a result. That wouldn’t be surprising.
The pandemic’s effects are still being felt. Before March 2020, consumer balance sheets and corporate credit were strong. But the government paused student loan payments as form of pandemic response.
Delinquency rates started falling for almost every form of consumer credit. But that wouldn’t last forever.
Now times are tougher. Before the pandemic, almost 12% of those with student loan were more than 90 days late on their payments. Economists expect that pattern to resume, which will add $167 billion in delinquent balances back to the U.S. economy.
That will put pressure on other areas of the economy. It could produce higher delinquent balances elsewhere and mean less consumer spending overall.
So, despite slowing inflation, we’re not out of the woods yet.
