By striking down student debt forgiveness last week, the U.S. Supreme Court not only added a hefty expense back into millions of Americans’ budgets, it also created a challenge for retailers already struggling to predict how consumers may spend in the coming months. The court’s decision squashed President Joe Biden’s plan to forgive up to $20,000 per borrower in federal student loan debt. Student loans will already take a bigger bite out of budgets this fall 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 percent of borrowers, or about 20 million people, according to the White House. The timing of the change could amplify its impact on retailers. Student debt repayment is poised to resume just before the all-important back-to-school and holiday seasons.
Total Retail’s Take: While not the decision retailers were hoping for from the Supreme Court, it’s still too early to tell how significant an impact the repeal of student loan forgiveness will have on consumer spending. What’s not too early to know is that the ruling will have some impact on the industry — and not in a positive way. Analysts differ on the severity of that impact, however.
According to Brad Thomas, a retail analyst at KeyBanc Capital Markets, the loan changes are “enough to potentially give us what could be an ugly and disappointing holiday season, relative to expectations.”
However, higher education expert Mark Kantrowitz takes a softer stance on what the ruling could mean in the second half of the year for retailers: “The impact on retailers is yes, it’s going to be a negative, but it’s not going to be a huge decrease,” he said. “It’s a mild decrease.”
Retailers, particularly those that serve a younger customer demographic, should be factoring in tightened consumer budgets into their end-of-year forecasts. The resumption of student loan payments along with the continued persistence of inflation has, at least for the moment, led to a bearish outlook for the all-important Q4 holiday season.
