Borrower Expectations for the Return of Student Loan Repayment

Chakrabarti, Rajashri; Mangrum, Daniel; Thomas, Sasha; Van der Klaauw, Wilbert

Discussion Paper

Borrower Expectations for the Return of Student Loan Repayment

Abstract: After forty-three months of forbearance, the pause on federal student loan payments has ended. Originally enacted at the onset of the COVID-19 pandemic in March 2020, the administrative forbearance and interest waiver lasted until September 1, 2023, and borrowers’ monthly payments resumed this month. As discussed in an accompanying post, the pause on student loan payments afforded borrowers over $260 billion in waived payments throughout the pandemic, supporting borrowers’ consumption and savings over the last three years. In this post, we analyze responses of student loan borrowers to special questions in the August 2023 SCE Household Spending Survey designed to gauge the expected impact of the payment resumption on future spending growth, the risk of credit delinquency for borrowers, and the economy at large. The findings suggest that the payment resumption will have a relatively small overall effect on consumption, on the order of a 0.1 percentage point reduction in aggregate spending from August levels, and a (delayed) return of student loan delinquency rates back to pre-pandemic levels. Across groups, we see little variation in spending responses but find that low-income borrowers, female borrowers, those with less than a bachelor’s degree, and those who were not in repayment before the pandemic expect the highest likelihood of missed student loan payments.

Keywords: household spending; student loans;

JEL Classification: D14; I22;