Ah, student loans. The bane of many a millennial’s existence, and quite possibly a cause for gray hair before their thirtieth birthday. Imagine for a moment that you’re having a dinner party. Your most unwanted guest, Student Loan, sends an RSVP that they’re making a comeback in September. The conversation around your dinner table of finances is about to get more interesting, and dare I say, possibly more heated?
This sudden reappearance of student loan payments is akin to a surprise visit from that long-lost relative who insists on scrutinizing your life decisions. Except in this case, the relative is the federal government, and the life decision is paying off your student loans.
As Goldman Sachs analysts colorfully phrase it, this could cause a “modest drag on spending.” Now, ‘modest’ isn’t a word that typically excites, but in this context, it might as well be a billboard with neon lights. It suggests that the economy, already dancing on the edge of a pin, could do a clumsy cha-cha slide right off the stage.
On the other hand, some experts, like the ever-cheerful Thomas Simmons from Jefferies, argue that this could compound “issues that are already sort of set in place.” There’s a delightful euphemism for you. It’s as if your car’s engine fails mid-journey, and your companion says, “This might slightly compound our transportation issues.” Thanks, Tom.
The pendulum swings both ways, with the Supreme Court deliberating President Joe Biden’s up to $20,000 student loan cancellation plan. If approved, this could see $400 billion in student loan balances wiped away. To add another metaphor to the mix, that’s like having a flood in your house, and then someone turns up with a squeegee.
On the flip side, if the court slams down the gavel on the side of no forgiveness, Goldman Sachs predicts student loan payments would suck 0.2% from personal consumption expenditure (PCE) growth this year. If the court rules in favor, it’d still sap 0.1% off PCE growth.
Our friend Simmons again provides a different viewpoint. He mentions borrowers exhausting their excess savings due to inflation and the possibility of this being the “worst possible time” for many households to be hit with an extra bill. Yikes! If pessimism were a sport, I’d bet my money on Simmons for the gold.
With 43% of borrowers not feeling financially stable and 21% without savings (Credit Karma survey), the approaching student loan payments are like a gathering storm. Many borrowers have also added to their credit card, mortgage, and auto loan debts, stretching their budgets like overused elastic bands.
All in all, the return of student loan payments could turn an economic waltz into an awkward and chaotic rave. So hold onto your hats (or rather, your wallets), ladies and gentlemen, because September’s party is just around the corner. And our guest of “honor” is sure to make an unforgettable entrance. Let’s just hope the economy remembered to bring its dancing shoes.
Oke Kay Snyder is a seasoned financial journalist and part-time stand-up comic. When he’s not juggling debt discussions, you can find him scouting for the best BBQ joints in town. For more financial insights sprinkled with humor, follow him on Twitter @PubCoInsight
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