There will be 0.1% less consumer spending when student loans have to be repaid, Morgan Stanley predicts

In an attempt to determine how much less consumer spending there would be as a result of a return to student loan repayment, in July 2023 Morgan Stanley estimated that consumer spending would fall a total of 0.1%. A total of 27 million people were expected to start repayments of student loans in October 2023; as reported by Bloomberg media, about 15 million people kept repaying their student loans through the pandemic.

According to the report, Morgan Stanley estimated that approximately 90% of the student loan repayment by borrowers would come from the consumer spending budgets of those individuals, whereas only 10% would come out of what they would have been allocating for savings.

Questions arising on Bloomberg media included:

—how many loan recipients actually saved the money during the repayment pause that they would have otherwise had to pay earlier?

—how many will now be moving into cheaper apartments?

—how many will now be saying “No” to family members who ask those borrowers for money?

—how many returned to college during the pandemic, borrowing even more and doubling down on their debt load?

—how many joined the military as a means of paying for their college education?

—how many chose cheaper colleges to attend?

—how many were prioritizing payment of club dues ahead of student loan repayment?

—how many bought cheaper cars than they had originally planned?

As a Bloomberg reporter summarized, “Borrowing lots of money, attending four years of college, and attending numerous keggers while there does not, by itself, guarantee a huge lifetime income.”

(Bloomberg media, July 11, 2023)