Restarting student-loan payments could hit economy hard

The hit to household cash flows as a result of the resumption could be substantial: Bank of America Institute estimates it might be around $180 a month for the median impacted household. In a 2017 survey conducted by the Federal Reserve, the median monthly student-loan payment was $222 and the average was $393. 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.

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The return of student-loan payments is a much larger collective wallet impact compared with the end of the pandemic-era enhanced food-stamp benefits, which took away around $3 billion of additional assistance a month, according to Howard Jackson, president of HSA Consulting. Federally funded enhancements to food-stamp benefits ended nationwide at the end of February.

[This would tend to argue against the need for the suspensions in the first place. If the money was getting spent on non-essentials, then maybe those payments should have been made all along. At any rate, we’re already tiptoeing around recession. This could potentially nudge us even closer. It’s something worth watching. — Ed]

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