027: Student Loan Repayment 07-28-23

Ever wondered what effect the return of federal student loan repayments could have on the economy? This episode of Markets with Megan Horneman, Chief Investment Officer for Verdance Capital Advisors, will make you sit up and take notice as she unpacks the potential ramifications of the resumption of these payments. You'll be engrossed as Megan explains how this could potentially expedite a reduction in consumer spending power, with an estimated $205 billion less to be spent each year, equating to roughly 0.75% of nominal GDP.

As Megan delves into what the fourth quarter may hold, we're left pondering the impact this might have on already burdened consumers. Projections suggest that spending patterns could alter, the overall economic outlook may darken, and we could be on the brink of a bearish economy. Tune in for this insightful discussion on a topic that's not getting the attention it deserves but could significantly influence the state of our economy. After the episode, if you have any burning questions or thoughts, we'd love to hear from you. Don't miss out on this engaging dialogue that could reshape your understanding of student loans and their effect on the economy.

Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with Markets With Megan, we've got a lot of questions from clients around the resumption of student loan payments and what that may mean from an economic growth perspective. I don't think it's getting talked about enough of what kind of impact this can have in the fourth quarter back-of-the-envelope math very simple math on what this might mean from a reduction in annual spending power from consumers. The math that we have does not take into consideration the $39 billion that President Biden is trying to get through. But keep in mind that's such a small fraction when you're looking at a market that's almost $2 trillion.

If you look at the amount of federal student loan that's out there, it's about $1.8 trillion dollars. The federal student loan is about 90% of that. We're looking at about $1.6 trillion worth of student loan that needs to start being repaid. Interest will start occurring on September 1st and payments start in October. We have the average monthly payment of a student loan. Debt is about $390.

If you look at the amount of borrowers that are out there, it's 43.6 million people. The annual cost for that is about $4,700. If you look at the total amount, that 4,700 times 43.6 million, it's about $205 billion dollars a year. That's not an insignificant amount of money that now consumers don't have the wherewithal to spend. So $205 billion dollars is about 0.75% of nominal GDP. We don't think that that's a number to gloss over, that this won't have an impact, especially that it's starting in the fourth quarter where we're talking about gross slowing. We've consistently talked on this podcast about the consumers being strained. Now you're seeing just another domino stacking up against the consumers. Again, we'll watch this. We'll see if it changes any of the spending patterns in the fourth quarter or if it gets us more bearish on the economic outlook for the consumer. We just want to give you that update on the student loan repayment. If you have any questions or comments, please feel free to reach out to podcast at verdence dot com. Thank you.