Student Loan Payments to Pressure Consumers As 34% Say They Can't Pay
The upcoming restart in student loan payments is set to weaken the US consumer, according to Morgan Stanley.
The bank conducted a survey of about 2,000 consumers and found some startling insights.
A whopping 34% of survey respondents said they will not be able to make the payments at all.
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The upcoming restart of student loan payments could begin to weigh down a US consumer that has been remarkably resilient over the past year and a half.
According to a recent survey of about 2,000 consumers by Morgan Stanley, concerns over upcoming debt and mortgage payments has soared to the highest level since the survey began.
Part of that surge is due to this October's restart of student loan payments, which have been paused since the start of the pandemic in March 2020. The average payment is between $300 and $400, based on various estimates.
"Only 29% of consumers who have federal student loans are confident they will have enough money to start making payments without adjusting spending in other areas," Morgan Stanley said.
Meanwhile, 37% of respondents said they will need to cut their spending in other areas to make the student loan payments, while a whopping 34% of respondents said they will not be able to make the payments at all. In this case, the restart of payments will negatively impact low-income households the most, according to the survey.
Consumers' concerns about the impact of the imminent restart of student loan payments spilled over into other their areas of their finances.
Morgan Stanley said 31% of consumers were worried about their ability to repay debts and 27% to pay rent or mortgage, with both metrics hitting all time highs.
As a segment of consumers start to feel increased pressures heading into the fall when student loan payments restart, discretionary spending categories could see the biggest decline if consumers need to tighten their belts, according to the note.
The discretionary categories with the most strongly negative net spending intentions were consumer electronics, toys, home appliances, food away from home, and leisure/entertainment.
"Overall, the majority of consumers surveyed (61%) continue to say they are likely to cut back on spending over the next six months," Morgan Stanley said.
Such a decline in consumer spending could fuel recession fears that have been recently echoed by JPMorgan, which expects an economic dip to materialize by the end of this year or early next year.
It could also fuel concerns about a dip in Target's business, as the retailer has high exposure to millennials that are most likely to have student loan debt.
Source: Markets Insider
