Student Loan Repayment Freeze Extended Into 2023, Likely Helping Consumer Spending

The Biden administration has extended the pause on student loan repayments, interest and collections into 2023. Previously interest payments were expected to restart in January 2023. This is expected to give the courts time to resolve the legal battle that is currently blocking the student loan forgiveness plan.

This will likely be a small positive for the U.S. consumer in 2023, as resumption of student loan payments is expected to be a drag on consumer spending at a time when recession risks are elevated for the U.S. economy. Given the legal challenge, it is also unclear if student loan forgiveness will proceed as planned.

Timing Of Student Loan Repayments

Unlike previous orders extending the pause on student loan payments, the timing is dependent on the actions of the courts. The Biden administration’s student loan forgiveness plan has been blocked by a lower court and the Biden team are taking a challenge of that decision to the Supreme Court.

This means that student loan payments are expected to resume no later than 60 days after June 30, 2023. However, if a definitive legal ruling comes earlier, then that would move up the date when student loan repayments resume into earlier in 2023. If legal uncertainty drags on beyond June 2023, then student loan payments would still resume 60 days later on the current plan.

The Impact On The Consumer

The resumption of student loan repayments is likely to be a 0.2% drag on consumer spending in the month it resumes. That’s roughly equal to the rate of consumer spending growth that we’ve seen each month in 2022. Hence, the resumption of student loan payments could be a drag on the U.S. economy once repayments resume.

Legal Ruling On Student Loans

In addition to the timing of student loan payments being uncertain, so is the status of student loan forgiveness. The Biden administration’s student loan forgiveness plan is currently blocked due to a legal ruling that the plan is unconstitutional.

The Biden is challenging that decision, however the outcome is unclear. This means that we don’t know if student loan forgiveness will move forward or not. Once there is clarity on that legal decision, and no later than June 30, 2023 repayments will resume 60 days later.

Student loans just created another level of uncertainty for the U.S. consumer in 2023. We don’t know if student loan forgiveness will be implemented as planned or when student loan repayments will resume. However, the fact that student loan repayments will not resume in January 2023 gives some breathing room for the U.S. consumer.