The NY Times is really trying to make a case for doing away with all the student loan debt, but, really, this is really not the argument they’re looking for
Mykail James has a plan for when payments on her roughly $75,000 in student loans restart next month. She’ll cut back on her “fun budget” — money reserved for travel and concerts — and she expects to limit her holiday spending.
“With the holidays coming up — I have a really big family — we will definitely be scaling back how much we’re spending on Christmas and how many things we can afford,” James said. “It’s just going to be a tighter income overall.”
In October, roughly 27 million borrowers like James will once again be on the hook for repaying their federal student loans after a three-year hiatus. President Joe Biden tried to use his executive powers to forgive about $400 billion in student debt last year, but the Supreme Court overruled that decision in June, and payments kick in again in October.
Fun budget? They knew this was coming, and they also legally took out the loans. There’s lots of us with mortgages and other loans who plan accordingly, knowing that those payments come before concert tickets, unlimited-data phone subscriptions, streaming media subscriptions, fast fashion, dining out regularly, international travel, craft beers, lots of energy drinks, expensive foo-foo coffees, tattoos, all their selfies, weed, vape pens, etc. These are all considered “basic expenses” by many of those complaining about having to repay student loans. This is not a good argument for cancelling the debt.
Now there are big questions about how those people — many of whom had expected to have at least some of their debt erased — may change their spending habits as they budget for student loan payments again. It could crimp the economy if a large share of consumers cut back simultaneously, especially because the resumption in payments comes just as the retail and hospitality industry begin to eye the crucial holiday shopping season.
Not a great argument. But, hey, you know, if the government would cancel our mortgage and car debt we could spend that money on fun, too! Except, up, didn’t the Experts tell us that it was all that spending money post-COVID that was causing the economy to over-heat? So, maybe we make those people pay what they owe and reduce interest rates.
But the student loan payments will also restart at the same time consumers face a number of other headwinds, including shrinking savings piles, a cooler job market and higher price levels after two years of rapid inflation. It could also coincide with major strikes; Hollywood actors and writers have been locked in a work stoppage all summer, and the United Auto Workers began a targeted strike Friday — one that economists warn could be disruptive if it lasts. Adding another source of looming uncertainty, Congress could fail to reach a funding agreement by the end of this month, forcing a government shutdown.
The NY Times is working hard, unintentionally, to tell us the economy is not good
The resumption of student loan payments for a retailer like J.C. Penney, which caters to middle-income consumers, would be the latest unwelcome squeeze on their budgets. Their core customer makes an annual income of $55,000 to $75,000 and has had their monthly household expenses increase by $700 from two years ago. The department store chain said 17% of its credit card customers have student loans.
$700 a month. Bidenomics.
And some borrowers may simply not pay, at least for a while. Because missing payments will not be reported to credit reporting agencies for a year — the so called “on-ramp” period — households have wiggle room, said Constantine Yannelis, an economist at the University of Chicago Booth School of Business.
Wiggle room to continue with their Fun Budget? Good grief.
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