End of Student Loan Payment Pause to Impact Retail Spending and Brands

As the pandemic-era pause on federal student loan payments comes to an end this fall, millions of Americans and several well-known retail brands are bracing for a financial shock. The resumption of loan payments is expected to significantly impact consumer spending, particularly in the retail sector, according to experts.

Since the onset of the COVID-19 pandemic in March 2020, federal student loan borrowers have enjoyed a relief from making monthly payments, offering much-needed financial breathing room. This pause, however, is set to conclude on August 30, with borrowers expected to resume payments. Approximately 44 million borrowers across the United States have been affected by this pause, with the Biden administration extending it eight times. However, as part of a bipartisan debt ceiling deal approved by Congress, this extension will not be renewed.

The impending payments could lead to a significant strain on household finances. The average monthly payment ranges from $200 to $299 per person, with some borrowers facing even higher obligations, as reported by the latest data from the Federal Reserve. In total, borrowers are anticipated to collectively contribute about $10 billion each month toward loan repayments, according to an analysis by JPMorgan.

The potential reduction in disposable income is expected to impact consumer spending habits, with retail likely to bear the brunt. UBS analyst Jay Sole cautioned that households might be forced to cut back on discretionary purchases, particularly in the apparel category. Market research indicates that consumers with student loans have been deferring apparel purchases, suggesting that they will continue this trend when faced with loan repayments.

This spending shift could have repercussions for various brands and retailers, including American Eagle Outfitters, Carter’s, Crocs, Foot Locker, Canada Goose, Gap, Nordstrom, Nike, Steve Madden, Under Armour, and Victoria’s Secret, as noted by UBS.

JPMorgan analyst Chris Horvers raised concerns about Target’s vulnerability, given its strong appeal to millennials, a demographic that holds a substantial share of student loan debt. Horvers emphasized that Target could face a hit in sales once student loan repayments resume. The potential impact on Target’s sales could lead to a comparable headwind for retail spending.

While the retail sector readies itself for these changes, President Biden’s broader student loan forgiveness plan remains a topic of discussion. The U.S. Supreme Court blocked a plan that sought to eliminate up to $10,000 in student loan debt for individual borrowers who earned less than specific income thresholds. President Biden expressed his disappointment with the court’s decision and outlined alternative plans, including the forgiveness of $39 billion in loans.

As the end of the student loan payment pause approaches, both borrowers and retail brands are preparing for a financial shift that could reshape consumer spending patterns and impact the broader economy.