An unheralded US economic risk this month is the fate of around $430 billion in forgiven US student debt.
The Supreme Court will decide on whether President Biden had the authority to write off the debt this month. The exact date of decisions aren’t disclosed but it’s one of seven cases likely to be decided before the end-of-June recess, so it could come any time.
The market likely expects the Supreme Court to rule against Biden but it’s tough to say whether it’s priced in, and how much. Up to $20,000 per borrower may be forgiven if the White House gets its way. Students are also set to begin repayments — whatever their balance is — in August.
There will be a hit to wallets if the debt is restored and a University of Chicago paper argues that those who are affected could be particularly hard hit because the beneficiaries of the moratorium on payments and potential forgiveness racked up an additional $2500 in student loan debt and $2000 in credit card debt.
Typical student loan payments are about $200 a month and that’s likely to be entirely taken from disposable income. According to the Consumer Financial Protection Bureau, about 1 in 13 borrowers are currently behind on their other payment obligations, and one in five have risk factors that suggest they will struggle if scheduled payments resume.