It was probably going to happen anyway, but the debt-ceiling deal struck between President Joe Biden and House Speaker Kevin McCarthy spells the end of the student debt repayment moratorium.
The White House had extended that moratorium until two months after the Supreme Court rules on its $400 billion loan forgiveness plan — which, in all likelihood, means after August. But the debt-ceiling deal, assuming Congress approves it, eliminates the possibility that the student loan repayment moratorium can be extended.
In a note written earlier in the year, Jefferies economist Thomas Simons spelled out the impact.
It’s big, impacting some 45 million borrowers. Citing New York Fed data, he said the average student loan payment for a borrower not in deferment prior to the forbearance was $393 per month.
“This may sound like a modest hit, but the impact on income is very similar to the tax increases associated with ‘The Fiscal Cliff’ of 2013, which was followed by a noticeable slowdown in consumption,” he said.
Simons added it will be a problem for a significant number of household budgets, given that no payments have been required since the beginning of the pandemic. “Households have already been eating into their excess savings to maintain their preferred consumption in the face of high inflation. This suggests that it is very likely that most households that were previously making student loan payments have not been saving the extra money or including the payments in their budgets,” he added.
