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BONUS EPISODE: Student Loan Supreme Court Fallout · Bloomberg Intelligence

• 0:00
  Speaker 1: It was one week ago to the Supreme Court throughout
• 0:02
  Speaker 1: President Biden's plan to cut student loan debt for more
• 0:05
  Speaker 1: than forty million Americans. Now those people are facing the
• 0:08
  Speaker 1: prospect of higher monthly payments when they resume paying off
• 0:11
  Speaker 1: that debt in October. That comes after a three year
• 0:14
  Speaker 1: pause on payments due to the pandemic. It's not just
• 0:18
  Speaker 1: former students who could feel the pain. The broader economy
• 0:20
  Speaker 1: could take a hit as well. Student loans account for
• 0:23
  Speaker 1: nearly ten percent of all outstanding consumer credit, and the
• 0:27
  Speaker 1: prospect of payments resuming could also curb consumer spending. Here
• 0:31
  Speaker 1: with more is Denise Pellegrini in a Bloomberg Radio special report.
• 0:35
  Speaker 2: It's hard for me to wrap my head around repayment
• 0:39
  Speaker 2: becoming a thing, just because it's been pushed off so
• 0:42
  Speaker 2: many times up until this point.
• 0:44
  Speaker 3: Megan is twenty five. She's been working at charter schools
• 0:48
  Speaker 3: in Boston and elsewhere after graduating from a top private
• 0:51
  Speaker 3: liberal arts college in Connecticut, and she says she's in
• 0:54
  Speaker 3: shock that she'll have to start repaying all of the
• 0:58
  Speaker 3: tens of thousands of dollars.
• 1:00
  Speaker 2: I can see myself my lifestyle changing a lot, unfortunately.
• 1:04
  Speaker 3: And Megan is one of millions of students, former students,
• 1:07
  Speaker 3: and others reeling after the Supreme Court. Throughout the Biden
• 1:10
  Speaker 3: Administration's plan to forgive between ten and twenty thousand dollars
• 1:14
  Speaker 3: of student debt for many.
• 1:16
  Speaker 4: For the typical student loan borrower, they're going to start
• 1:19
  Speaker 4: paying about three four dollars a month.
• 1:21
  Speaker 3: Mark Sandy, chief economist at Moody's Analytics, says the one
• 1:25
  Speaker 3: two punch of not having some of the debt forgiven
• 1:28
  Speaker 3: and having to resume the monthly payments as soon as
• 1:30
  Speaker 3: October is going to be painful for.
• 1:33
  Speaker 4: Many student loan borrowers, younger borrowers, lower income borrowers.
• 1:38
  Speaker 3: That's tough tough for borrowers like twenty seven year old Marcus,
• 1:42
  Speaker 3: a middle school history teacher and first generation college grad
• 1:45
  Speaker 3: in the Philadelphia metro who owes about fifty thousand dollars
• 1:49
  Speaker 3: in student loans and says all of this has him
• 1:51
  Speaker 3: feeling aasis.
• 1:53
  Speaker 5: I'm feeling pretty. I'm not going to lie does things.
• 1:57
  Speaker 5: It does hurt. The fact is, you know we're not
• 1:59
  Speaker 5: going to be given this assistance.
• 2:01
  Speaker 3: Marcus is already cutting and spending to get ready for
• 2:04
  Speaker 3: the hundreds of dollars a month he now expects to
• 2:06
  Speaker 3: start paying back.
• 2:07
  Speaker 5: I'm cutting coffee every day, like I'm basically building as
• 2:10
  Speaker 5: the end of the week luxury or gift. It's like,
• 2:12
  Speaker 5: you know, if I want to snack this or that,
• 2:14
  Speaker 5: I'm like I need this, I needed that, And also
• 2:17
  Speaker 5: just like limiting how many times I go out socially
• 2:20
  Speaker 5: as well.
• 2:20
  Speaker 3: And economist Sandy says, on top of cuts in discretionary
• 2:24
  Speaker 3: spending like the ones Marcus is talking about, borrowers are
• 2:28
  Speaker 3: going to start cutting back on basic necessities, especially in
• 2:31
  Speaker 3: the face of the higher cost of living that people
• 2:34
  Speaker 3: are already struggling with.
• 2:35
  Speaker 4: People have to juggle, meaning you know, they'll be paying
• 2:38
  Speaker 4: late on this and then paying that and then so
• 2:40
  Speaker 4: it's going to be very uncomfortable for a lot of
• 2:42
  Speaker 4: these folks that have been able to not pay on
• 2:46
  Speaker 4: their student lunk the past several years.
• 2:47
  Speaker 3: And Sandy also says ones payment requirements ramp up, and
• 2:50
  Speaker 3: if borrowers do make their payments, this will take fifty
• 2:53
  Speaker 3: to sixty billion dollars a year out of spending.
• 2:56
  Speaker 4: Probably about a quarter point zero point three percent. There's
• 3:00
  Speaker 4: points of GDP.
• 3:01
  Speaker 3: Some other economists are even more worried than Zandy, including
• 3:05
  Speaker 3: Thomas Simon's US economist at.
• 3:07
  Speaker 6: Jeffries almost like a tax increase.
• 3:09
  Speaker 3: And Simons calls this impact very significant.
• 3:12
  Speaker 6: Four hundred dollars times forty five million people is almost
• 3:16
  Speaker 6: eighteen billion dollars a month in the aggregate, and that
• 3:18
  Speaker 6: is roughly a little bit less than one percent of
• 3:21
  Speaker 6: nominal monthly personal income.
• 3:23
  Speaker 3: Megan says she is planning on cutting back on buying
• 3:25
  Speaker 3: locally sourced food from upscale retailers, and also cutting back
• 3:29
  Speaker 3: on travel and on other big ticket items key to
• 3:32
  Speaker 3: the US economy as well.
• 3:34
  Speaker 2: My car is so old, so I just think, like
• 3:36
  Speaker 2: when it dies, it dies, and I won't.
• 3:38
  Speaker 5: Buy a car.
• 3:38
  Speaker 2: I won't have to worry about gas or anything.
• 3:40
  Speaker 3: And Simons says the cutbacks like the ones Megan is
• 3:43
  Speaker 3: talking about, come at a bad time for the US economy,
• 3:46
  Speaker 3: as people start to run out of savings they've been
• 3:48
  Speaker 3: using to keep up consumer spending.
• 3:51
  Speaker 6: I think that, you know, we're pretty close to the
• 3:53
  Speaker 6: end of how much longer that can continue without more
• 3:57
  Speaker 6: sort of rebudgeting going on and people shifting or spending
• 3:59
  Speaker 6: works essential. And as that happens, you know, there are
• 4:02
  Speaker 6: knock on effects that eventually lead to higher unemployment and
• 4:06
  Speaker 6: unfortunately intercession as well.
• 4:07
  Speaker 3: Some borrowers have already shifted their spending two essentials and
• 4:11
  Speaker 3: are still struggling even without making payments, including Mariah, a
• 4:15
  Speaker 3: twenty nine year old in the Phoenix metro with an
• 4:18
  Speaker 3: undergraduate degree as an athletic trainer, who says as a
• 4:21
  Speaker 3: first generation college student, she thought her degree was the
• 4:24
  Speaker 3: end of her problems, but it turned out to be
• 4:26
  Speaker 3: just the beginning.
• 4:27
  Speaker 7: I feel like I will never break even.
• 4:29
  Speaker 3: Mariah says she was skipping some student loan repayments even
• 4:32
  Speaker 3: before the pandemic moratorium began, after salaries in her field
• 4:36
  Speaker 3: failed to rise as much as projected and the cost
• 4:39
  Speaker 3: of certifications intensified. And now after a car accident and
• 4:43
  Speaker 3: a layoff, she does some things she'll be able to
• 4:45
  Speaker 3: start making payments again anytime soon.
• 4:48
  Speaker 7: Hit the math and I realized for the every two
• 4:50
  Speaker 7: thousand dollars I put in, I get about four thousand
• 4:53
  Speaker 7: worth of interest.
• 4:54
  Speaker 3: And she describes herself as worse off than some of
• 4:57
  Speaker 3: her friends who didn't go to college.
• 4:59
  Speaker 7: I do have that didn't go to college, and I
• 5:01
  Speaker 7: honestly I thought the joke was on them and it's
• 5:04
  Speaker 7: like the joke's on me.
• 5:05
  Speaker 3: One thing that could help is the pay and the
• 5:06
  Speaker 3: Biden administration is now offering a plan that would let
• 5:09
  Speaker 3: borrowers ease back into student loan payments over time. Zandy says,
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  Speaker 3: reality we'll sink in for those who owe.
• 5:16
  Speaker 6: It's not a gift.
• 5:16
  Speaker 4: It wasn't a gift in the first place. It was alone.
• 5:20
  Speaker 4: I think students know that to understand that.
• 5:23
  Speaker 3: And Sandy says borrowers who didn't get their degrees may
• 5:25
  Speaker 3: struggle the most. And of course for the borrowers who
• 5:28
  Speaker 3: did keep making payments during the pandemic, they were able
• 5:31
  Speaker 3: to pay down principle, and that's a good thing for
• 5:34
  Speaker 3: their own balance sheets and for the economy, but especially
• 5:37
  Speaker 3: for those who have not paid down their debt. Simon
• 5:40
  Speaker 3: says that now you see it, now you don't shock
• 5:43
  Speaker 3: of not getting flat out. Loan forgiveness is going to
• 5:45
  Speaker 3: have an extra impact on spending plans.
• 5:48
  Speaker 6: Certainly, consumer and psychology is going to play into it
• 5:51
  Speaker 6: a lot, and.
• 5:52
  Speaker 3: He says this will make millennial borrowers more cautious about
• 5:55
  Speaker 3: spending long term on things like buying a home.
• 5:59
  Speaker 6: Do you think of this as like coming into the
• 6:01
  Speaker 6: recession and then leading out to it in maybe like
• 6:03
  Speaker 6: two or three years. That's where we'll start to see
• 6:06
  Speaker 6: these psychological impacts I think really play out.
• 6:09
  Speaker 3: As for the students we spoke to, Megan will be
• 6:11
  Speaker 3: in graduate school this fall and avoid payments in the
• 6:13
  Speaker 3: short term. Mariah is helping to boost her income to cope,
• 6:17
  Speaker 3: but even so she's not sure she can make the payments.
• 6:20
  Speaker 3: And Marcus plans to use every bonus he gets to
• 6:23
  Speaker 3: pay down principle, meaning he says he expects to have
• 6:27
  Speaker 3: to delay making big purchases like buying a home for years.
• 6:31
  Speaker 5: It puts a big wrench in the plans that I had.
• 6:34
  Speaker 3: A wrench in the plans. Marcus had a possible wrench
• 6:38
  Speaker 3: in plans millions of others had for their money. And
• 6:42
  Speaker 3: as the Federal Reserve eyes more possible interest rate hikes,
• 6:45
  Speaker 3: a potential wrench in plans for those hoping for a
• 6:48
  Speaker 3: soft landing for the US economy. Denise Pellegrini, Bloomberg Radio