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The pandemic-era personal finance reprieve is coming to an end. For more than three years, tens of millions of Americans have benefited from a student debt hiatus. On September 1, loans will start accruing interest once again. Payments will resume in October.
On Wednesday, Foot Locker warned sales were soft partly because the end of the moratorium was curbing consumer spending. The shares dropped by a third in morning trading. Macy’s stock dropped 14 per cent on Tuesday for similar reasons.
More than 43mn Americans collectively owe $1.6tn in student debt. A new means-tested support scheme launched by the Biden administration this week will make little difference. Before the pandemic, borrowers paid on average between $200 and $299 each month on their loans, according to the Federal Reserve.
Barclays reckons the resumption of payments could deliver a $9bn-a- month hit to US consumer spending. Millennials and Generation X Americans owe some 70 per cent of federal student debt.
These two groups tend to eat out more often than older cohorts. That suggests less money through the tills at McDonald’s and KFC, which is owned by Yum Brands.
Retailers that have a high proportion of shoppers with student loans to pay off include Academy Sports + Outdoors (37 per cent) and Foot Locker (36 per cent), according to estimates calculated by TD Cowen. Among the biggest retailers, Ulta has 26 per cent while Target has 20 per cent.
More than half of active users of buy now, pay later companies like Affirm, Klarna and PayPal have student loans, a sample survey conducted by Mizuho shows. Credit card companies could also take a modest hit. More than half of student loan borrowers took on debt via their credit cards during the pandemic, according to TransUnion.
Streaming services, personal care products and travel are exposed to spending cuts, a separate survey from TD Cowen shows.
Mentions of “student loan” and associated keywords have more than doubled this earnings season compared to previous quarters, according to a CB Insights analysis of earnings call transcripts.
Expect to hear more well-paid chief executives complaining about student debts. But it is middle-income, early to mid-career Americans who are most burdened with it.
The Lex team is interested in hearing more from readers. Please tell us what you think of the impact of student loans on the US economy in the comments section below.
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