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With student loan payments set to resume this fall, borrowers are likely going to have to cut back spending — and that’s bad news for some retailers. The U.S. Department of Education said Tuesday that payments will be due starting in October after a three-year, Covid-induced pause. Around 40 million Americans have a total of nearly $1.8 trillion in outstanding student loan debt. The impact on consumer spending will be billions and billions of dollars, several Wall Street firms have said. Deutsche Bank estimates that spending will be reduced by $14 billion a month, at $305 per borrower. That translates into a hit of 4.15 percentage points to monthly discretionary sales in the firm’s worst-case scenario, analyst Gabriella Carbone said in a note Wednesday. According to Barclays, the renewed payments could possibly total an aggregate $15.8 billion monthly headwind to spending, with the average student debt holder seeing an incremental monthly payment of $390 a month. “For most, this will be the first time making payments since the early days of the pandemic in March 2020,” analyst Adrienne Yih wrote in a June 13 note. “We regard the incremental ‘essential’ nature of the debt payments as likely to reduce discretionary spending by an approximately equal amount.” Meanwhile, JPMorgan estimates 1% to 2% estimated headwinds to comparable sales starting in the second half, assuming no loan forgiveness. The Supreme Court is expected to rule this month on the Biden administration’s student loan forgiveness plan , which cancels $20,000 in student debt for borrowers who received a Pell Grant in college or up to $10,000 if they did not. “Our math points to a ~$10B headwind to the consumer wallet assuming no student loan forgiveness or ~$5B assuming student loan forgiveness (up to $20K for PELL grant recipients and $10K for all other borrowers vs. ~$35K average loan balance),” JPMorgan analyst Christopher Horvers wrote in a June 2 note. Retailers at risk Inflation has already caused Americans to cut back on spending, with a focus on reducing discretionary spending while continuing to pay for experiences. Clothing is the No. 1 nonessential category where consumers have cut back, according to a recent CNBC and Morning Consult survey . Some 63% said they have been buying less since the beginning of 2023. UBS expects the pullback in apparel spending to continue as Americans shift funds to student loan payments. In fact, its analysis of U.S. consumers with student loans shows that the trend is even more pronounced among those with student debt. “We believe this indicates Student Loan Consumers will reduce spending on apparel in a big way when they have to start paying off their student loan debt,” analyst Jay Sole wrote in a June 4 note. In addition, they prefer brands over private label and specialty retailers over discounters, he said. That means companies such as Crocs , Gap , Nike and Victoria’s Secret are likely to be hurt more by reduced spending, he noted. Barclays believes those retailers most affected are ones that cater to college-educated consumers with higher incomes in the 18- to 34-year old age group. Among those with the greatest risk are American Eagle Outfitters , Urban Outfitters and Figs , popular with recent graduates and newly employed, 18- to 34-year-olds. JPMorgan, Deutsche Bank and Keybanc all named Target as one of those that will be hurt, while JPMorgan and Keybanc also included Best Buy . Big Lots made the list for both Keybanc and Deutsche Bank. Keybanc’s thesis is that the companies already grappling with the slowdown in discretionary spending will see the biggest headwinds. “We see continued risk of trade-down and deferred purchase of discretionary spending,” analyst Bradley Thomas said in a note Monday. “This puts the biggest risk on companies already experiencing pressure from current consumer headwinds (like lower tax refunds and higher inflation).” JPMorgan also called out Dick’s Sporting Goods and Ulta as among those with the most potential negative impact from the payment resumptions. “At a high level, we believe the company specific impact follows (1) exposure to Millennial and Gen X customers (which account for ~69% of total student loans), (2) exposure to states with higher average student loan balances (primarily Northeast and Southeast), and (3) discretionary mix,” Horvers said. — CNBC’s Michael Bloom contributed reporting.
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