These decisions will likely have a “small but measurable” effect on how people with students loans spend their money going forward, according to Peter Nencka, an assistant economics professor at Miami University.
Around 70% of the American gross domestic product is consumer spending.
“There’ll be some degree of spending slowdown,” he said.
In Ohio, 62% of students graduate with an average debt of $30,629, according to the Ohio Attorney General. That is roughly a $311 payment that people with student loans haven’t had to pay in more than three years.
Nencka said some people have been using that money to save up to buy a home, upgrade a car or just save some money.
Samantha Panson, a Beavercreek resident who has student loans, told the Dayton Daily News she would need to reconfigure her budget to repay her student loans when they restart in October.
President Joe Biden’s administration announced earlier this week that there will be a 12-month grace period once payments and loan interest resume in October, where people who struggle to make their student loan payments will not have their credit affected nor will loans go into forbearance.
Kevin Willardsen, an associate economics professor at Wright State University, said there are two fundamental issues related to student loans right now. One is what could happen to the economy if student loans are forgiven, and the other is what will happen to the economy when student loans resume.
He says the impact of student loans resuming will be greater than any potential impacts from student loans being forgiven.
The Biden administration has announced plans to pursue loan forgiveness under the Higher Education Act of 1965, which is a federal law that governs the student loan program. There are few details about what that would look like and who would qualify as of Thursday.
Willardsen said the movement of money from savings accounts or other parts of a household budget back to student loans – or for some people who graduated in 2020-2023, for the first time – will change the amount of money going into consumer spending.
Nencka encouraged folks who will newly have to pay back student loans to look into income-based repayment plans.
But it’s not clear how much that will impact consumer spending, and Willardsen argues it will be a small dip compared to the larger economy.
Willardsen said that a lot of people who have student loans are still young, which is why they make comparatively less money than the population at large.
“It’s because they’re young that they’re poor, not because they have student loans, just because they don’t have any work history yet,” Willardsen said.
Willardsen said the largest impacts will likely be for universities and colleges, as student loans act similarly to a subsidy to universities and colleges.
“It’s important to recognize that it is the universities that would be hurt the most,” he said.
The Associated Press contributed to this report.
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