Analysis of Education Loans by Western Media: "Deadly Strike" or Accelerating the Burden of US Economic Recession | Economy | Western Media
On July 6th, the website of the Spanish newspaper The Economist published an article titled "University Debt - An Unexpected" Deadly Strike "that Could Lead to a recession in the United States" by Victor Bentura. The content is compiled as follows:
One of the heaviest burdens on the US economy is college education loans: nearly 50 million people owe loans for higher education. Since the COVID-19 pandemic, the Trump and Biden governments have reduced some fees, and the current president even tried to erase most of the education loans. But last Friday, the Supreme Court of the United States ordered a halt to the reduction of education loans and demanded a restart of repayments. Analysts are concerned that as this heavy burden burdens Americans again, education loans will become a "fatal blow", leading to a comprehensive recession of the US economy in the coming months.
The data on university education loans is undoubtedly vast. According to Forbes magazine, the total amount of loans reached $1.75 trillion, of which 92% came from the central government and only 8% came from banks and private institutions. Since 2008, the amount of education loans has doubled, even leaving mortgage loans and credit cards behind. And contrary to the predicted situation, the main "victims" are not only young fresh graduates, but also those aged 35 to 49 who have the highest total debt, while those aged 61 and above have the highest per capita debt.
In 2022, Biden approved an executive order to waive education loans of $10000 to $20000 applied to the central government. Given an average loan of approximately $29000, this move will reduce the outstanding debt of all graduates who have not yet repaid their loans by approximately half. But the Supreme Court ultimately rejected this administrative order and also terminated the loan repayment suspension measures since 2020. College graduates will have to empty their pockets and pay their debts every month after the summer vacation ends.
This shift in the situation has made analysts at Jeffrey Financial Group particularly concerned. Economist Thomas Simmons is concerned that once arrears are restored, "it will have a significant impact on consumer spending. My concern is that most people who have to pay arrears again have limited ability to bear the increase in spending, which will result in them having to cut back on other project expenses and cover their wallets to stop spending.". Simmons said, "I'm worried that this is the tipping point for pushing the economy into recession."
According to the meeting minutes released this week, the Federal Reserve estimates that the United States will either enter a recession or maintain a slow positive growth rate, with a 50% chance of either scenario. And this unexpected impact is likely to become a key factor that propels the balance towards a US economic recession.
Morgan Stanley quantifies the impact of this shock at around $200 to $300 per person, which is overall 0.06% to 0.09% of the US gross domestic product. In this sense, the scale of consumer spending cuts will not be large enough to drag the entire country into a recession, but their impact will be real and will exacerbate the economic cooling expected to occur in the fall of this year.