July 09, 2023 18:41 Last Update: 18:53
One of the heaviest burdens on the U.S. economy is college education loans: Nearly 50 million people, or 15 percent of the nation’s population, owe loans for higher education. Since the pandemic, both the Trump and Biden administrations have waived some fees, and the current president has even tried to wipe out the vast majority of education loans in one stroke. But on Friday, the U.S. Supreme Court ordered the education loan forgiveness halted and repayments restarted.
The U.S. Supreme Court on Friday ordered an end to education loan forgiveness.
The Spanish “Economist” website published an article on July 6th entitled “University Debt-An Unexpected “Fatal Blow” That Could Lead to a Recession in the United States”. The author Victor Ventura wrote that analysts worried that As the heavy burden of college education loans falls back on the shoulders of Americans, it will be a “fatal blow” that will lead to a full-blown recession in the U.S. economy in the next few months.
Screenshot of the article.
The data on college education loans is undoubtedly huge. According to a report by Forbes magazine in the United States, the total amount of loans is as high as 1.75 trillion US dollars, of which 92% comes from the central government, and only 8% comes from banks and private institutions. The amount of education loans has tripled since 2008, leaving even mortgages (up only 40%) and credit cards (up 30%) behind. And contrary to the predicted situation, the main “victims” are not only young graduates, but people between the ages of 35 and 49 owe the most amount of debt, while those over 61 have the most debt per capita.
In 2022, Biden approved an executive order that will reduce educational loans of $10,000 to $20,000 applied to the central government. Given that the average loan is about $29,000, the move will roughly halve the outstanding debt of all graduates who have yet to pay off their loans. But the Supreme Court ultimately struck down the executive order, which also ended a moratorium on loan repayments that had been in place since 2020. University graduates will have to empty their pockets and pay their arrears each month after summer.
This turn of events has analysts at Jefferies Financial Group particularly concerned. Economist Thomas Simmons worries that once payments resume, “there will be a considerable impact on consumer spending. My concern is that most people who have to pay their arrears again will have a fairly limited ability to absorb the increase in spending.” , and this will cause them to have to cut spending on other projects and cover their wallets to stop spending. “I fear this is the tipping point that will push the economy into recession,” Simmons said.
According to the minutes of the meeting released this week, the Fed estimated that the United States will either enter a recession or maintain a slow positive growth rate, with a 50% chance of each scenario. And this unexpected shock is likely to be a key factor in tipping the balance toward a US recession.
Morgan Stanley quantifies the impact of the shock at about $200 to $300 per person, or 0.06% to 0.09% of U.S. gross domestic product overall. In that sense, consumer spending cuts won’t be large enough to tip the entire country into recession, but the impact will be real and will exacerbate the economic cooling expected this fall.
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2023-07-09 11:04:51
