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A shopper browses for T-shirts in the children’s section at Old Navy in Denver, Colorado.
Brent Lewis | Denver Post | Getty Images
By canceling student debt relief on Friday, the US Supreme Court not only added huge expenses to the budgets of millions of Americans. It also created the latest challenge for retailers It is already struggling to predict how consumers will spend in the coming months.
The court decision overturned President Joe Biden’s plan to forgive up to $20,000 per borrower of federal student loan debt. Student loans will already take a larger chunk of budgets this fall as payments and interest accruals resume after more than three years of pandemic-related hiatus. On Friday, Biden announced steps to make the transition to resuming payments easier and create a path to forgive some loans.
The opinion means that outstanding loan balances would be higher with those payments resuming than they would have been if the court ruled in Biden’s favour. The plan would have eliminated all debt for nearly 45% of borrowers, or about 20 million people, according to the White House.
The return of payments adds another upset for the nearly 40 million Americans who have student loans at a time when consumers are showing more caution. Nearly all Americans said they are holding back on spending in some way, according to a recent CNBC and Morning Consult poll. Retailers, including Walmart, Target, Home DepotAnd hook And foot lockerhe said that customers are buying fewer expensive items and switching to low-priced private label brands.
The timing of the change may amplify its impact on retailers. Student debt payments are set to resume before the important back-to-school and holiday seasons.
Brad Thomas, a retail analyst at KeyBanc Capital Markets, said the loan changes “will not make or break whether or not we go into a recession.” Still, he said, it may have a psychological effect on heavily indebted Americans who are on the hook for hundreds of dollars in monthly payments again.
“It’s enough to give us what could be an ugly and disappointing holiday season, relative to expectations,” he said.
‘too good to be true’
Lenny Gill, 31, is one of the borrowers whose $20,000 loan could have been wiped clean. The Denver resident, who works as a sales manager for a technology company, was awarded a Pell scholarship to apply for her undergraduate degree at Louisiana State University. Biden’s plan would have canceled her remaining balance of student debt.
Jill said she got a taste of what life would be like without student loans Covid pandemic. For about three years, she hadn’t paid close to $400 a month toward her credit. Instead, she saved more money and redid the house where she and her fiancé live, with a new sofa and nicer dishes and plants. She got rid of credit card debt and paid off her car.
However, she said she never dealt with her debt, which was canceled.
“It was always one of those things that just felt too good to be true,” Gill said. “So I didn’t really put in much hope or much thought or planning, or even let myself go any further than, ‘What would life be like without these payments?'” “
Jill said she’s going to tighten the budget as she pays off that debt again. You’ll likely forgo high-quality groceries, such as organic fruits and vegetables, and better cuts of meat. Instead of shopping at the farmer’s market, she said she’ll likely buy more from big box stores like Wal-Mart Cheapest prices.
Stubborn inflation has forced Americans to pay more for food and housing, and concerns about a possible recession have added to the pressure facing consumers and businesses. Meanwhile, government programs such as the loan subsidy designed to keep families afloat during the pandemic have fallen behind On the road side.
Stimulus checks, expanded child tax credits, and a stronger Supplemental Nutrition Assistance program for low-income families have all boosted budgets. That cash flow is gone, even as less Covid-wary consumers shift spending toward experiences rather than goods.
All of these factors could hurt retail sales this year.
KeyBanc’s Thomas said the pause in student loan repayments was another pandemic winds-up for retailers. It could generate an annual headwind of about 2% for retail sales over the next year if it is not offset by higher income or more borrowing, according to KeyBanc. Several retailers said on earnings calls this spring that small tax refunds contributed to slowing sales.
Estimates vary on how much student borrowers will pay each month. The Bank of America Institute estimates that the average affected family will pay about $180 per month. Higher education expert Mark Kantrowitz estimated that a typical monthly bill would be about $350. KeyBanc estimates the average monthly payment to be between $400 and $460.
Kantrowitz said there is little data on how Americans use the money they didn’t spend on student debt. Did they buy more luxury items, book a vacation, or save up?
He said he doubted the resumption of payments would have a significant impact on retailers, since the amount represents a small percentage of the country’s GDP.
“The impact on retailers yes, it will be negative, but it won’t be a significant decline,” he said. “It’s a moderate decline.”
Brett House, professor of economics at Columbia University Business School, echoed a similar sentiment. He said the student loan changes are modest compared to the hurt people are feeling from inflation or the dwindling of pandemic-enhanced savings accounts.
He added that many Americans have received bonuses since the payments stopped three years ago.
hardest hit companies
The end of student loan forgiveness may Some jobs are harder to hit than others.
Some of the companies with the most exposure are those that sell a lot of discretionary merchandise, incl Bath and Body Worksparent TJ Maxx Cos TJX.And Dick’s Sporting Goods And best buyAccording to Wells Fargo analysts. Companies that rely on expertise are also at risk, including FanDuel’s parent company Flutter for entertainmentAnd Kings And Life Time Fitnessthe company said.
Barclays said American Eagle Outfitters, Urban Outfitters and Teen are most at risk because of their popularity with recent college graduates and new hires.
Several stock research firms, including KeyBanc, have named Target as a retailer that will come under pressure, since its sales have already plummeted and it attracts a younger, college-educated clientele.
TJ Maxx store owned by TJX Cos Inc in Pasadena, California.
Mario Inzoni | Reuters
Retailers may not have factored in consumers’ resumption of student loan payments in their forecasts for this year, and most major players in the sector haven’t commented on the potential implications. The decision to stop extending the student loan standstill period, which was part of an agreement reached by Republicans and Democrats to raise the nation’s debt ceiling, came after the end of the retail earnings cycle.
Although some retailers may take a hit when payments resume, analysts and executives largely believe that people will continue to spend on dining out and airline tickets.
Rick Cardenas, CEO of parent company Olive Garden Darden RestaurantsThe return of student loan payments will be an important factor for the company, he said last Thursday, but not a significant factor. Darden owns a mix of restaurant chains, including LongHorn Steakhouse and The Capital Grille.
“Anytime you pull money out of consumers’ pockets, it’s a headwind, but it shouldn’t be material, because student loan payments are a very small component,” Cardenas told analysts on the company’s earnings conference call.
He added that Darden clients will be better able to reconcile payments, as a high percentage earn more than $100,000 annually.
Wall Street analysts don’t expect a significant drop in restaurant sales when the loan forgiveness ends.
This is a “confined risk” to restaurants, Citi Research analyst John Tower wrote in a March note to clients.
“It will just be another drag on consumer spending, in addition to inflation,” BTIG analyst Beit Saleh told CNBC.
“But we know that historically, all of these other things are traditional noise — what drives same-store sales and traffic in most restaurants is job growth and income growth, and we’re getting those two things now,” he said.
Airlines may also be more immune to damage to borrowers’ balance sheets.
Strong demand for travel and airline tickets at pre-pandemic levels helped lift revenue for some airlines to a record high in the first quarter of the year, and airport security checks on some days this month exceeded pre-pandemic levels as consumers spend on experiences.
“Given how much income has increased in the past three years, I can’t see how this will be very challenging,” he said. Frontier Airlines CEO Barry Biffle told CNBC.
Airlines are more vulnerable to spending declines during peak periods.
“You’ll be flying Thanksgiving and Christmas. I think that’s ingrained in the head of American consumers,” said Conor Cunningham, airline analyst at Milius Research. “I’m not worried about summer travel. Summer travel would be great. It’s the off-peak things that make me anxious.”
This usually happens after the peak summer period and between holidays when business travel — and during the pandemic, telecommuting and off-season trips — has been able to fill in the gaps. Some airlines can change their schedules to adjust to weaker demand.
Even if many industries are not affected by the demise of student debt cancellation and resumption of payments, millions of Americans will feel the change sharply.
Tiffany Serra said the reality of her looming payments “started creeping up on me.”
The 23-year-old graduated in 2022 from Cornell College in Iowa with a bachelor’s degree in Finance and Environmental Studies – along with $120,000 in debt. She works in a seasonal position on Shelter Island, New York And you make $22 an hour, plus housing costs are covered. Sera said she had a hard time finding a full-time job.
And starting this fall, Cera will pay that debt for the first time. You’ve tried to prepare by raising money to cover that big bill, which you expect to be at least $600 a month. Cera also adopted new spending-cutting habits, including growing herbs at home and making her own oat milk.
Student loan forgiveness would have made a slight decrease in her total debt, but Cera said she still wishes the plan had stuck. Sera has recently attended law school, but decides against it to avoid racking up more student loans.
She said she will have to make difficult decisions in the coming months, such as whether she can renew her car lease. She wouldn’t have the breathing room to buy steel-toed shoes for work or book a flight to the San Francisco Bay Area to visit a friend.
“It will definitely be a huge financial burden when I have to start making those payments,” Serra said.
— CNBC’s Amelia Lucas, Gabrielle Vonrog, Leslie Joseph and Annie Nova contributed to this story.
Disclosure: Comcast and CNBC parent NBC Sports are investors in FanDuel.
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