Striking down Student Debt Forgiveness: Impact on Consumers and Retailers
By striking down student debt forgiveness on Friday, the U.S. Supreme Court not only added a hefty expense back into millions of Americans’ budgets, but also created the latest challenge for retailers already struggling to predict consumer spending in the coming months.
The Supreme Court’s Decision
The court’s decision squashed President Joe Biden’s plan to forgive up to $20,000 per borrower in federal student loan debt. This comes at a time when student loans will already take a bigger bite out of budgets as payments and interest accruals resume after a more than three-year pandemic-related pause.
The opinion means outstanding loan balances will be higher as those payments resume than they would have been if the court had ruled in favor of Biden. The plan would have wiped out all debt for nearly 45% of borrowers, or about 20 million people, according to the White House.
Impact on Consumers and Retailers
The return of student loan payments adds another disruption for the approximately 40 million Americans who have student loans, especially as consumers are showing more caution in their spending habits. A recent AsumeTech and Morning Consult survey found that nearly all Americans are pulling back on spending in some way.
Retailers, including Walmart, Target, Home Depot, Kroger, and Foot Locker, have already reported that customers are buying fewer big-ticket items and switching to lower-priced private-label brands. The timing of the change could amplify its impact on retailers as student debt repayment is poised to resume just before the all-important back-to-school and holiday seasons.
The end of student loan relief may hit some businesses harder than others. Companies that sell discretionary merchandise, such as Bath & Body Works, TJX Cos., Dick’s Sporting Goods, and Best Buy, are among the most exposed, according to Wells Fargo analysts. Experience-driven companies like Flutter Entertainment, DraftKings, and Lifetime Fitness are also at risk. Retailers that cater to recent college graduates and newly employed individuals, such as American Eagle Outfitters, Urban Outfitters, and Figs, may also be vulnerable.
However, analysts and executives largely believe that people will continue spending on dining out and airline tickets, despite the resumption of student loan payments. Rick Cardenas, CEO of Darden Restaurants, stated that while the return of student loan payments will be a factor for the company, it shouldn’t have a significant impact. Wall Street analysts also anticipate a contained risk for restaurants, as job growth and income growth are the primary drivers of sales and traffic. Airlines, too, may be more immune to the hit to borrowers’ budgets, especially during peak travel periods like Thanksgiving and Christmas.
Conclusion
While the Supreme Court’s decision to strike down student debt forgiveness has added a financial burden for millions of Americans, the impact on retailers and the overall economy may be modest. Consumers may tighten their budgets and adjust their spending habits, but other factors such as inflation and income growth will continue to play a more significant role in shaping retail sales. As the back-to-school and holiday seasons approach, retailers will need to navigate this latest challenge and adjust their strategies accordingly.
