A shopper at Old Navy in Denver, Colorado, chooses shirts in the kids’ section.

Brent Lewis | Denver Post | Getty Images

By eliminating student debt relief on Friday, the U.S. Supreme Court didn’t just add huge spending to millions of Americans’ budgets.It also presents the latest challenge for retailers It is already difficult to predict how consumers will spend in the coming months.

The court ruling crushed President Joe Biden’s plan to forgive up to $20,000 of federal student loan debt per borrower. After a more than three-year pause due to the pandemic, student loans have taken a larger share of the budget this fall as payments and accrued interest resume.

The opinion means that as those payments resume, outstanding loan balances will be higher than if the court ruled in Biden’s favor. According to the White House, the program would eliminate all debt for nearly 45 percent of borrowers, or about 20 million people.

The chargebacks are another disruption for the roughly 40 million Americans with student loans at a time when consumers are acting more cautiously. Nearly all Americans say they are cutting spending in some way, according to a recent CNBC and Morning Consult survey. retailers, including Walmart, Target, The Home Depot, hook up and foot cabinetindicating that customers are reducing their purchases of big-ticket items in favor of lower-priced private label brands.

The timing of the change could amplify its impact on retailers. Student debt repayments are expected to recover ahead of the all-important back-to-school and holiday seasons.

Brad Thomas, retail analyst at KeyBanc Capital Markets, said loan adjustments won’t “determine whether we’re in a recession.” But he said it could have a psychological impact on indebted Americans, who again face payments of hundreds of dollars a month.

“It was enough to give us an ugly and disappointing holiday compared to expectations,” he said.

‘incredible’

Lenèe Gill, 31, is one of the borrowers whose $20,000 loan could be wiped out. The Denver resident, who works as a sales director at a technology company, received a Pell Grant to pursue her undergraduate degree at LSU. Biden’s plan would wipe out her remaining student debt balance.

During this time, Jill said, she got a taste of what it would be like to live without student loans. COVID-19 pandemic. For about three years, she hasn’t paid her balance of about $400 a month. Instead, she saved more money and decorated the home where she and her fiancé lived with new sofas, better tableware and plants. She paid off her credit card debt and paid off her car loan.

But she said she never expected the debt to be cancelled.

“It’s always been one of the things that I think is too good to be true,” Gill said. “So I never really hoped much, thought or planned much, and didn’t even allow myself to think ‘what would life be like without these payments?'”

Jill said she will tighten the budget as she pays down debt again. She may forego buying higher-end groceries, such as organic fruits and vegetables and better meats. Instead of shopping at farmers’ markets, she said she’s likely to shop more at big box stores like Walmart. The price is cheaper.

Stubborn inflation is forcing Americans to pay more for food and housing, while fears of a potential recession add to the pressure on consumers and businesses.Meanwhile, government programs such as loan forgiveness, designed to keep families afloat during the pandemic, have dwindled by the road.

Supreme Court weighs what's at stake in student loan debt relief

Stimulus checks, an expanded child tax credit and a stronger Supplemental Nutrition Assistance program for low-income families all added to the budget. That infusion of cash is over, even as consumers less vigilant about the coronavirus have shifted spending toward experiences rather than goods.

All of these factors could hurt retail sales this year.

KeyBanc’s Thomas said the suspension of student loan payments is another pandemic tailwind for retailers. According to KeyBanc, retail sales could experience an annualized headwind of about 2% next year if not offset by higher income or higher borrowing. Many retailers said on their earnings calls this spring that fewer tax rebates have slowed sales.

Estimates of the amount student loan borrowers will need to pay each month vary. The American Banking Institute estimates that the median affected household will pay about $180 per month. Higher education expert Mark Kantrowitz estimates the typical monthly cost to be around $350. KeyBanc estimates the average monthly payment to be between $400 and $460.

Kantrowitz said there is little data on how Americans spend the money they don’t spend on student debt. Did they buy more luxuries, book vacations or save money?

He said he doubted resuming payments would have a significant impact on retailers because the amount represents a tiny fraction of the country’s gross domestic product.

“The impact on retailers is sure, it’s going to be negative, but it won’t be a big drop,” he said. “It’s a slight decline.”

Brett House, an economics professor at Columbia University Business School, echoed a similar sentiment. Changes in student loans have been modest compared with the pressure people are feeling from inflation or reductions in savings accounts strengthened by the pandemic, he said.

He added that many Americans have received raises since the payments were suspended three years ago.

Most Affected Companies

The TJ Maxx store is owned by TJX Cos Inc and located in Pasadena, CA.

Mario Anzoni | Reuters

Retailers may not have factored in consumers resuming student loan payments in their forecasts for this year, and most major players in the industry have not commented on the possible impact. The decision to end the extension of the student loan moratorium came after the retail earnings cycle ended as part of a deal between Republicans and Democrats to raise the national debt ceiling.

While some retailers may take a hit when payments resume, analysts and executives generally agree that people will continue to spend money on dining out and airfare.

Rick Cardenas, CEO, Olive Garden Parent Company Darden RestaurantOn Thursday, it said student loan repayments would be a factor for the company, but not a significant one. Darden is home to several restaurant chains, including LongHorn Steakhouse and The Capital Grille.

“Anytime you take money out of consumers’ pockets, it’s going to be a headwind, but it shouldn’t be material because student loan payments only account for A very small portion.”

He added that Darden’s clients would be better able to handle payments because a large percentage make more than $100,000 a year.

Wall Street analysts don’t expect restaurant sales to drop significantly after loan forgiveness ends.

That’s a “limited risk” for restaurants, Citi research analyst Jon Tower wrote in a March note to clients.

BTIG analyst Pete Saleh told CNBC, “It’s going to be another drag on consumer spending on top of inflation.”

“But we know that historically all this other stuff is traditional noise — what drives most restaurant same-store sales and traffic is job growth and income growth, and we’re getting both of those things right now,” he said .

Airlines may also be more vulnerable to borrowers’ budgets.

Strong travel demand and airfares around pre-pandemic levels helped some airlines post record revenues in the first quarter of this year, and airport security has surpassed that on some days this month as consumers spend on experiences. pre-pandemic levels.

“Given how much revenue has increased over the past three years, I don’t see how this is going to be a significant challenge,” he said. frontier airlines CEO Barry Biffle told CNBC.

Airlines are more vulnerable to spending cuts during off-peak hours.

“You travel for Thanksgiving and Christmas. I think it’s ingrained in the minds of the American consumer,” said Conor Cunningham, an airline analyst at Melius Research. “I’m not worried about summer travel. Summer Travel would be great. It’s the off-peak stuff that worries me.”

This typically occurs after the summer peak and between the holidays, when business travel — and during the pandemic, remote work and off-season travel — can fill the gaps. Some airlines may alter flight schedules to accommodate weaker demand.

Even if many industries don’t take a hit from canceling student debt and restoring payments, the change will be felt strongly by millions of Americans.

Tiffany Serra said the reality of her looming payments “started to creep in and weigh on me”.

The 23-year-old is graduating from Cornell College in Iowa in 2022 with a bachelor’s degree in finance and environmental studies while carrying $120,000 in debt.She works seasonally on Shelter Island, New York Earnings are $22 an hour, which also includes housing. Sierra said she struggled to find a full-time job.

Starting this fall, Sierra will make the first repayments on the debt. She’s trying to save to pay the massive bill, which she expects to have at least $600 a month. Sierra has also picked up new spending-cutting habits, including growing herbs at home and making her own oat milk.

Student loan forgiveness would have reduced her total debt, but Sierra said she still hopes the program will stick. Sierra recently entered law school but decided to decline to avoid taking on more student loans.

She said she will have to make tough decisions in the coming months, such as whether she can afford to renew the lease on her car. She won’t have breathing room to buy steel-toed work boots or book a trip to visit friends in the San Francisco Bay Area.

“When I have to start making these payments, it’s definitely going to be a huge financial burden,” Serra said.

— CNBC’s Amelia Lucas, Gabrielle Fonrouge, Leslie Josephs and Annie Nova contributed to this article.

Disclosure: Comcast, the parent company of CNBC, and NBC Sports are investors in FanDuel.

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