Student loan forgiveness decision by Supreme Court to hit retailers
A shopper goes through shirts in the kids section at Old Navy in Denver, Colorado.
Brent Lewis | Denver Post | Getty Images
By striking down student debt forgiveness Friday, the U.S. Supreme Court not only added a hefty expense back into millions of Americans’ budgets. It also created the latest challenge for retailers already struggling to predict how consumers may spend in the coming months.
The court’s decision squashed President Joe Biden‘s plan to forgive up to $20,000 per borrower in federal student loan debt. Student loans will already take a bigger bite out of budgets this fall as payments and interest accruals resume after a more than three-year pandemic-related pause.
The opinion means outstanding loan balances will be higher as those payments resume than they would have been if the court had ruled in favor of Biden. The plan would have wiped out all debt for nearly 45% of borrowers, or about 20 million people, according to the White House.
The return of payments adds another disruption for the approximately 40 million Americans who have student loans at a time when consumers are showing more caution. Nearly all Americans said they are pulling back on spending in some way, according to a recent CNBC and Morning Consult survey. Retailers, including Walmart, Target, Home Depot, Kroger and Foot Locker, said customers are buying fewer big-ticket items and switching to lower-priced private-label brands.
The timing of the change could amplify its impact on retailers. Student debt repayment is poised to resume just before the all-important back-to-school and holiday seasons.
The loan changes won’t “make or break if we go into a recession or not,” said Brad Thomas, a retail analyst at KeyBanc Capital Markets. Yet he said it may have a psychological effect on debt-saddled Americans who are on the hook for hundreds of dollars in monthly payments again.
“It’s enough to potentially give us what could be an ugly and disappointing holiday season, relative to expectations,” he said.
‘Too good to be true’
Lenèe Gill, 31, is one of the borrowers who would have had $20,000 of her loans wiped away. The Denver resident, who works as sales director at a technology company, received Pell Grants to put toward her undergraduate degree at Louisiana State University. Biden’s plan would have eliminated her remaining student debt balance.
Gill said she got a taste of how life without student loans would look during the Covid pandemic. For about three years, she did not pay roughly $400 a month toward her balance. Instead, she saved more money and spruced up the home where she and her fiance live with a new couch, nicer dishes and plants. She chipped away at credit card debt and paid off her car.
Yet she said she never banked on her debt getting canceled.
“It was always one of those things that I felt was too good to be true,” Gill said. “So I never really put a lot of hope or a lot of thought or planning, or even let myself go as far as ‘What would life look like…
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