US Student loan changes are a small near-term drag on spending
Student loan policy changes are set to impact borrowers’ finances, affecting spending and saving habits
Changes to student lending will ding the economy in the near term, with higher repayments likely to lower consumer spending by graduates by around $3bn a year. However, faster repayments and new borrowing caps will help bring down the stock of student debt more quickly, improving graduates’ credit scores and borrowing capacity.
The One Big Beautiful Bill Act (OBBBA) reworked federal student loans on two fronts, both of which will begin to affect the economy later this year. On the repayment side, it replaces the SAVE plan with a new Repayment Assistance Plan (RAP), which features higher repayments, delayed loan forgiveness, and new measures to help lower-income borrowers reduce their balances faster. On the borrowing side, it caps unsubsidized graduate and subsidized Parent PLUS borrowing and eliminates Grad PLUS loans outright.
The new repayment formula affects 7mn borrowers, with high-income graduates the most affected. We estimate the average affected borrower will face nearly a $1,000 jump in annual repayments. The overall drag on consumer spending will be muted but concentrated in discretionary spending by young professionals.
Over the medium term, the changes to repayment plans and new caps on federal loans will also reshape the outstanding stock of student debt. Faster repayments could gradually improve borrowers’ credit profiles and borrowing capacity, helping to offset some of the near-term drag on consumption.
Download the report for more detailed insights.
You might also be interested in
This report was brought to you by the Macro team
Reliable and consistent economic forecasts, analysis, models and scenarios provide the insight necessary to make informed decisions in a fast-changing world.
