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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
US OUTLOOK/OPINION
- The more than three-year moratorium on federal student loans comes to an end at the end of next week, with payments resuming on Oct 1.
- It will impact the 29 million recipients of student loans currently in forbearance, amounting to $1.1tn as of June 30, 2023 (https://studentaid.gov/data-center/student/portfolio)
- The Fed notes that the average interest payment in 2019 was between $200-$299 per month (covering about 70% of adults with student loans). If all borrowers in forbearance were to restart payments in line with these past ranges, it would be the equivalent of $5.9B to $8.8B per month ($71-106B per year). That scales to an annualized 0.35-0.5% of disposable income or 0.4-0.55% of nominal spending as of the July personal income report.
- On the subject, MS have previously written that the new income-driven payment plan, SAVE, can lower the average federal loan payment closer to $200/month in July 2024. The impact to consumer spending in 4Q23 is mitigated somewhat by the 12-month grace period implemented by the Biden Administration. Assuming 50% of borrowers will begin making some payment in 4Q23, a 70% pass-through to consumer spending would result in a 0.8pp drag to real PCE growth in 4Q23, followed by a 0.3pp drag to 1Q24 consumption.
- Some of this Q4 impact might however have been brought forward into Q3, with a surprise jump higher in the daily deposits seen at the Department of Education marking a likely indicator of early repayments. They started to build in earnest in August before peaking with a historically high increase of $1.04B on Sep 1.
- It has meant
daily deposits summing to $13.9B in Q3 to date, up from $3.4B through Q2.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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