Latest / Markets with Megan: A Quick Financial Markets Update / 027: Student Loan Repayment 07-28-23

Transcript

027: Student Loan Repayment 07-28-23 · Markets with Megan: A Quick Financial Markets Update

• 0:04
  Megan Horneman: Hello, this is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors, coming to you today with Markets With Megan, we've got a lot of questions from clients around the resumption of student loan payments and what that may mean from an economic growth perspective.
• 0:19
  Megan Horneman: I don't think it's getting talked about enough of what kind of impact this can have in the fourth quarter back-of-the-envelope math very simple math on what this might mean from a reduction in annual spending power from consumers.
• 0:34
  Megan Horneman: The math that we have does not take into consideration the $39 billion that President Biden is trying to get through.
• 0:43
  Megan Horneman: But keep in mind that's such a small fraction when you're looking at a market that's almost $2 trillion.
• 0:50
  Megan Horneman: If you look at the amount of federal student loan that's out there, it's about $1.8 trillion dollars.
• 0:56
  Megan Horneman: The federal student loan is about 90% of that.
• 1:03
  Megan Horneman: We're looking at about $1.6 trillion worth of student loan that needs to start being repaid.
• 1:10
  Megan Horneman: Interest will start occurring on September 1st and payments start in October.
• 1:14
  Megan Horneman: We have the average monthly payment of a student loan.
• 1:18
  Megan Horneman: Debt is about $390.
• 1:21
  Megan Horneman: If you look at the amount of borrowers that are out there, it's 43.6 million people.
• 1:27
  Megan Horneman: The annual cost for that is about $4,700.
• 1:32
  Megan Horneman: If you look at the total amount, that 4,700 times 43.6 million, it's about $205 billion dollars a year.
• 1:42
  Megan Horneman: That's not an insignificant amount of money that now consumers don't have the wherewithal to spend.
• 1:48
  Megan Horneman: So $205 billion dollars is about 0.75% of nominal GDP.
• 1:54
  Megan Horneman: We don't think that that's a number to gloss over, that this won't have an impact, especially that it's starting in the fourth quarter where we're talking about gross slowing.
• 2:04
  Megan Horneman: We've consistently talked on this podcast about the consumers being strained.
• 2:09
  Megan Horneman: Now you're seeing just another domino stacking up against the consumers.
• 2:14
  Megan Horneman: Again, we'll watch this.
• 2:16
  Megan Horneman: We'll see if it changes any of the spending patterns in the fourth quarter or if it gets us more bearish on the economic outlook for the consumer.
• 2:22
  Megan Horneman: We just want to give you that update on the student loan repayment.
• 2:26
  Megan Horneman: If you have any questions or comments, please feel free to reach out to podcast at verdence dot com.
• 2:30
  Megan Horneman: Thank you.