Student loan interest rates and payments are set to restart in the fall, and the Supreme Court decided recently to scrap President Biden's debt relief plan.
Some economists have predicted a fiscal contraction as 40 million Americans are faced with payments again.
The thinking is the spending power of a large part of the population is about to decrease, hurting the economy.
However, critics of student loan debt relief often argue it is high-paid people who didn't lose work during the pandemic who benefited most from a pause, making a restart on payments less of an economic hit. Centrist think tank Brookings Institute said about 71 percent of households with outstanding debt have incomes that place them in the middle 60 percent of income distribution.
Q: Could restarting student loan payments hurt the economy?
Gary London, London Moeder Advisors
NO: The net effect to the economy is zero. Funds spent on student loan repayments would have been alternatively spent, but this is just redistribution. I think the better question is, now that the court has ruled against this relief, why do students need loans in the first place? Wouldn't it be better to cost cut our higher education system by reducing bloated bureaucracies, tapping unused endowments, and placing a greater emphasis on cheaper online education?
Bob Rauch, R.A. Rauch & Associates
NO: Borrowers who earned graduate or professional degrees tend to have both higher loan balances and higher incomes than those with a bachelor's degree or less. As of 2019, nearly 17 percent of the federally managed student loan portfolio was delinquent (about 3.3 million borrowers), with payments past due over 30 days. Some of those, if still suffering hardship may benefit from a further pause. Otherwise, everyone needs to pay their debts. The economy will be fine.
James Hamilton, University of California-San Diego
NO: When unemployment is high and inflation is low, fiscal stimulus can help the economy by increasing total spending. But at the moment, unemployment is low and inflation is way too high. More fiscal stimulus is the last thing the U.S. economy needs right now. There are legitimate reasons for trying to relieve student debt burdens. But in the current situation, providing more fiscal stimulus should not be one of the motivations for forgiving student loans.
Austin Neudecker, Weave Growth
YES: The result of restarting loan payments (and potentially reversing debt cancellation attempts) will disproportionately hurt low-income borrowers. Overall, I expect the macro impact to be small yet certain individuals will struggle. Many college graduates with the largest debts should be able to pay by substituting away from larger discretionary spending categories, cooling sectors like travel. However, others with smaller overall debt may be pushed to cover basics.
Norm Miller, University of San Diego
NO: Student loan repayments are transfers to other sectors of the economy, therefore they are a redistribution of the economy, not impacting productivity directly. Impacted households will need to adjust spending, affecting housing and car sales in the short term, but these are not relevant considerations. Equity and responsibility are valid considerations. Forgiving such loans tells some lucky citizens that you need not be responsible for your decisions, even though those before you were responsible.
Jamie Moraga, Franklin Revere
NO: It could temporarily cool the economy as spending on other goods and services by certain consumers will be allocated toward student loan repayments. There are plans for transitional payment plans to get borrowers back into the repayment cycle. It's estimated that there could be a 2 percent decrease in consumer spending on nonessential goods but not enough to hurt the economy in the long run.
David Ely, San Diego State University
NO: The Committee for a Responsible Federal Budget estimated that the pause in student loan repayments costs around $5 billion per month. Even if a large percentage of this amount were to shift from purchases to debt repayment, it would not be large relative to aggregate personal consumption expenditures across the entire economy. Many individual borrowers will likely adjust their spending patterns, but this development will not have a sizable impact on the economy.
Ray Major, SANDAG
NO: There are myriad events that could hurt the economy, but having people start to make payments on loans they are obligated to pay is not one of them. In terms of equity, the payment pause has disproportionately benefited the highest-income earners and those with the largest outstanding student loan balance. It's time they start to pay back the money they borrowed. The majority of the population who didn't take student loans should not have the burden of subsidizing those degrees.
Caroline Freund, University of California-San Diego School of Global Policy and Strategy
YES: But the effect will be marginal. Some folks have been spending their savings from paused student loan payments on goods and services. When payments resume, annual consumer spending could fall by at most $70 billion — the estimated annual value of loan payments. In a $25 trillion economy that is a drop in the bucket (less than 0.3 percent).
Haney Hong, San Diego County Taxpayers Association
NO: Since when does paying back money someone lent you "harm" the economy? Credit and loans are fundamental in economic growth (and folks will stop giving loans if they don't get paid back), so a payment pause for an emergency should be just that: a temporary pause. Now, if I'm wrong and somehow restarting payments hurts the economy, then we should acknowledge that too many people went to college and got nothing for it.
Kelly Cunningham, San Diego Institute for Economic Research
NO: How does the federal government incurring more debt subsidizing discretionary loans help the economy? Another massive transfer of wealth from those not benefiting to those who do. Should government also force forgiveness of mortgage, auto, credit card debt? There are programs available for relief of student loan borrowers to be considered on an individual basis. Blanket forgiveness for all, most of whom are capable of paying their own loans, is unjustified and not economically beneficial.
Lynn Reaser, economist
NO: Student loan amnesty amounted to an estimated $195 billion. Borrowers should have treated the relief as temporary and used it to pay down debt or saved it. Unfortunately, many, especially lower-income households, probably spent it. That $195 billion is a large number in absolute terms. However, even if all the loan relief were spent, it would amount to just about 1 percent of the $18.3 trillion in total consumer expenditures made each year.
Phil Blair, Manpower
NO: The U.S. economy is so huge restarting student loan payments will not be noticed. The people who took out the loans, like people with mortgages, knew what they were borrowing and what they would need to pay back. Education is a valuable asset that, by greatly increasing earning capacity, needs to more than pay for itself. It is not fair to those students and parents who paid for their education for millions of students to have a huge part of their loans paid for by the taxpayers.
