Student Loan Debt
Wow, I don’t have student loans anymore, so I didn’t realize they were still being paused from Covid. I guess they were paused almost immediately after the Pandemic started, but who would have known they still hadn’t kicked back in? The reason I mention this is because I’m a financial literacy aficionado and know so many people in the ole USA really don’t really have a great understanding of their personal finances, and what certain decisions do and don’t do.
I mean, student loan repayments restarting - that’s a pretty big deal for a lot of people. I’m not an expert on federal vs private loans, and nuances therein, but federal loans and interest on those loans were halted back in Spring of 2020. That’s 3 years ago, that people have not had to budget this very real expense into their budgets (not that that many people budget accurately). And now the monthly bills are coming due, and they will be monthly bills for years if not decades.
Dave Ramsey always uses the story of the twenty something or early 30’s living with their parents and using their incomes to buy designer handbags and going out to eat, postponing the very real reckoning of living on their own and the expenses and obligations therein (wow, used ‘therein’ twice in one blog post). I heard it on his podcast a bunch but just recently have I observed in real life, and that's the thing about Dave, his observations about people and their behaviors - he usually has some pretty good insight.
But jeez, if you were a family that was receiving pandemic aid, had their student loans paused, and received this and that pandemic handout - this is going to be a really rude wake-up call - and not short term.
I guess all of this plays into the inflation story. There’s lots of angles to the inflation story, but this is certainly one of them - that the average consumer with student loan debt didn’t have to pay that monthly payment so could spend $300-$1000 a month on ‘stuff’ - lord knows they didn’t save it. Add in the Gov’t aid, and each and every individual had money in their pocket - some loose coin, some spending cash, some jingle jingle. Besides the financial strain, it must just be depressing to know it’s coming. And the habits of spending are hard to just give up - be it restaurants, handbags, beauty or whatever. It’s painful.
From what I read, credit card balances for individuals are growing, interest rates are up, student loans coming due. I wonder how long it will take the decline in individual spending to show in macro economic data, and then relatedly, how long till it starts to bring down inflation because of slacking consumer demand.
Or will people not stop spending, borrow more for cars, take out home equity loans, fill up their credit cards until their is a real problem nationwide on the scale of the housing crisis of 2008, where it was clear something stank but everyone ignored it.
For my business, I’m not sure it matters. My clients, and their respective social-economic position, it doesn’t seem that they are impacted or sensitive to interest rates, student loans, etc… Whether they have a big lump sum sitting somewhere I don’t know - but I do know their monthly take-homes are pretty significant.
And as Dave Ramsey likes to say - it's the size of the hole (expenses and debt) versus the size of the shovel (income).
I know, I should be on the Central Bank Board of Governors.