Retailers Target Corp. and Walmart Inc. and jeans maker Levi Strauss & Co. are among firms flagging to investors they may be in line to feel the brunt of any pullback in spending. The phrase “student loan” was mentioned at least 40 times in earnings calls held during the current quarter by companies in the S&P 500, by far the most since the term first appeared in the early 2000s, Bloomberg data show.Americans with federal student debt haven’t needed to pay anything on their loans since the Trump administration froze payments and interest in March 2020 to ease the economic hit from Covid lockdowns. That respite is ending after the Supreme Court quashed President Joe Biden’s loan forgiveness plan in June, which would have forgiven up to $20,000 per borrower and wiped the debt of about 20 million people.
Though some big consumer companies have been benefitting from a shopping spree as Americans blow through their pandemic savings, they are wary that the loan bills will join a bout of high inflation and rising borrowing costs to derail spending.“It’s not going to help us,” said Levi Chief Executive Officer Chip Bergh in an interview in July. “The consumer is already under pressure and this is just going to ratchet that up even further.”Before the pandemic, the average monthly outlay for student debt was about $400. About one in five borrowers are expected to have monthly payments of $500 or more beginning in October, according to a TransUnion study released in July. That’s set to land a big blow to the US economy: the return of payments will reduce consumer spending by as much as $9 billion each month, or more than $100 billion a year, according to Oxford Economics.“The upcoming resumption of student loan repayments will put additional pressure on the already strained budgets of tens of millions of households,” Michael Fiddelke, Target’s chief financial officer, said during the company’s call on Aug. 16. “We remain cautious in our planning.”
Walmart CEO Doug McMillon cited student loans along with rising energy costs and reduced household savings as sources of pressure on consumer spending in the coming months. Research from the Federal Reserve Bank of San Francisco released last week showed Americans’ pandemic savings are nearly tapped out, shrinking to an aggregate of less than $190 billion in June from $2.1 trillion in August 2021.Retail companies are coming out of a mixed earnings season. Some reported better than expected sales and revenue, while others struggled to hold on to customers. But a common theme was the second half of the year might not look as rosy, and they’re pointing to student loan payments resuming as one potential culprit. For some, the warnings may strain the patience of investors already digesting disappointing quarterly reports. Macy’s Inc. reported a 9.2% drop in same-store sales on an owned basis as consumers pulled back on purchases, sending the shares down to the lowest since 2021. “The expiration of student loan forgiveness beginning in October, higher interest rate levels, and lower new job creation are all new pressures on the consumer,” CFO Adrian Mitchell said Aug. 22.Foot Locker Inc. mentioned the return of payments as one of the factors dragging on its projections in its Aug. 23 report. Investors punished its forecast cut and results miss, with shares sinking to a 13-year low Wednesday.But even executives helming companies with better results nevertheless highlighted the risks: Target was among firms beating analyst estimates while confronting weak demand for nonessentials and big investment items.Surveys on borrowers’ plans point to trouble ahead: A poll of 1,000 college graduates by the education website Study.com found that 37% of respondents were planning to adjust their budget in anticipation of their student-debt bills, and 29% said they were looking for a second job to help bridge the gap. An August report from the financial-services website Credit Karma found that 56% of federal student loan borrowers say they will need to choose between paying for their student loans or for necessities such as rent and groceries.To help borrowers ease back into repayments, the Biden administration has said it would implement a 12-month on-ramp period that essentially functions like a general forbearance plan. People who miss payments on their federal loans will not be considered delinquent or reported to a debt-collection agency during the grace period.
