Restarting student loan payments will squeeze some consumers already feeling the pinch, warns Moody's chief economist
- Restarting student loan payments will further squeeze consumers, Moody's chief economist told CNBC.
- Mark Zandi said restarting the payments will weigh on the economy at a particularly bad time.
Restarting student loan payments at the end of summer will force some consumers already feeling the pinch to rein in their spending and weigh on the overall economy, the chief economist of Moody's Analytics warned.
About 20 million student loan borrowers will have to start making contributions when President Joe Biden's pause on higher-education loan payments ends in August, Mark Zandi told CNBC on Tuesday. He estimated that the average payment would be about $250 a month.
While Zandi doesn't think a US recession is likely, he said the repayments would shave a couple of tenths of a per cent off GDP over the coming year.
"In a more typical time, that's not really that big a deal. The economy can digest that gracefully. But in the current environment with the economy as weak as it is, recession risks as high as they are, a couple of tenths of a percent can matter," Zandi told CNBC.
"I don't think that this is what's going to push us in, but it's certainly a weight in a pretty significantly inopportune time," he added.
Student loan-related obligations have been paused since the start of the pandemic but the moratorium is set to end soon following the tentative debt ceiling deal.
Payments would restart in late August if the deal is passed by Congress, or two months after the US Supreme Court makes a decision on Biden's debt-forgiveness — whichever comes first.
Zandi told CNBC some borrowers might not be able to make the payments because they've adjusted their spending based on having more cash over the past three years.
"They're going to have to face some hard choices here. What do I do? Do I stop paying on my credit card? Am I late on my rent payment? It's just going to increase the kind of juggling that people are going to have to do," he said.
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