The resumption of student loan payments will be only “a drop in the bucket” for the broader household sector, according to three Wells Fargo economists.
While the approximately 43 million borrowers with student loan debt will face increased obligations and reduced ability to spend on discretionary purchases, this will have minimal effects on the overall economy, Wells Fargo economists Shannon Seery, Tim Quinlan and Jeremiah Kohl wrote in a research note, Seeking Alpha reported Monday (Oct. 2).
They argue in the note that enormous student loan debts, specifically those exceeding $100,000, are limited to only 7% of borrowers, equivalent to fewer than 3 million people or less than 1% of the total U.S. population, according to the report.
This research note comes as student loan payments in the United States have resumed after a pause of over three years due to the COVID-19 pandemic, the report said. The resumption has raised concerns about its impact on borrowers and the broader household sector, as more than $1.6 trillion in federal student loan debt is owed.
The Wells Fargo economists noted that the majority of borrowers likely owe smaller amounts, with only a small percentage carrying significant debt burdens, per the report.
The economists also noted that some student loan borrowers have already resumed payments ahead of the due date, according to the report. In August, the U.S. Department of Education sent $6.4 billion to the Treasury, nearly five times the monthly average from January through July.
Looking ahead, the Wells Fargo economists anticipate some weakness in real personal spending in the remaining months of 2023 as more borrowers resume payments, the report said. However, they estimate that student loan debt repayment will subtract only about 0.4% to 0.6% from total annual consumption.
PYMNTS Intelligence has found that nearly 90% of consumers with student loans expressed concern about payments resuming — with nearly all of those who owe more than $100,000 feeling the heat more strongly.
Reallocating funds toward loan repayments means that money will no longer be available for other important goals, such as achieving financial stability, padding savings accounts or paying bills, according to the “Consumer Inflation Sentiment Report: Back to School Means Back to Federal Loan Repayments.”