Don’t make a mountain out of loan bill

Summary

Student loan payments are due again this month after a more than three-year pause on payments and interest accrual. For the roughly 43 million borrowers who hold student loan debt, this means increased obligations and less ability to spend on discretionary purchases. But for the broader household sector, this is a drop in the bucket. Student loan repayment should be a relatively contained headwind.

The basics of repayment

Interest accrual re-started at the beginning of September and payments are due in October. Yet, we have already seen borrowers resuming payments ahead of the due date. The U.S. Department of Education sent $6.4 billion to the Treasury in August, nearly five-times the monthly average from January through July. For September, payments came in even faster. Through September 28, $6.8 billion has been sent to the Treasury (Figure 1). Monthly payments vary widely by household depending on income and debt outstanding, but we estimate the average payment to fall somewhere in the ballpark of $200-300 per month, which equates to around 5% of the U.S. median annual salary.

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