My Account
Macro and Market

For Those with Student Loans, Time to Pay Up (Again)

The three-year student loan moratorium will end soon for 40 million borrowers. Where will these monthly payments come from? Retailers may not like the answer.

By  Mike Rode, CFA
Man looks concerned about the information on a paper he is holding.

Key Takeaways

Federal student loan payments will resume in October, which means some 40 million borrowers will once again set aside hundreds of dollars to cover these outlays in their monthly budgets.

Resumption of the payments will add to an already deteriorating environment for lower-income consumers dealing with inflation, dwindling savings and other economic pressures.

We believe consumer staples should hold up even as consumers face increasing headwinds that may affect their discretionary spending.

More than three years after COVID-19 upended everyday life, the realities of pre-pandemic life have mostly returned.

Packed restaurants. Crowded airplanes. And, for some 40 million people with a combined $1.5 trillion of debt, student loan statements will soon reappear in their mailboxes.

Enacted in March 2020 to give borrowers some relief as the pandemic spread across the United States, the student loan payment moratorium will expire at the end of summer. Those who got a break for three years will have to resume making monthly payments in October.

Where will these estimated average monthly payments of $200-$400 come from?1

They will most likely come from these consumers’ discretionary spending. That’s a headwind for lower-income earners who are already vulnerable to deteriorating economic conditions or owe other debts. Another blow to student borrowers: The U.S. Supreme Court rejected a Biden Administration proposal to forgive $10,000 or more of outstanding debt for qualified borrowers. (The Biden Administration responded with a July 14 announcement that $39 billion in federal student loans would be forgiven for 804,000 borrowers to fix inaccurate payment counts for those in income-driven repayment plans.)

Retail stocks have performed well this year, and this new dynamic poses a particular risk to department stores that sponge up discretionary spending.

But companies that produce consumer staples, the type of products people can’t do without, may likely enjoy a better outlook.

Financial Strains Emerge as Savings Dwindle and Student Loan Pause Ends

According to FactSet, consumer discretionary stocks have jumped 32% as of June 30. That’s on the strength of an unsustainable level of consumer spending.

The pandemic proved devastating in many ways, but the government stimulus it spawned left many Americans with unprecedented excess savings. As lockdowns eased and the economic outlook improved, stir-crazy consumers indulged themselves with revenge spending sprees on apparel and experiences like travel, concerts, restaurants and spectator sports.

That cash supply has now dwindled as consumers burn through savings. The Federal Reserve Bank of San Francisco said in May that excess personal savings stood at $500 billion, down from a peak of $1.3 trillion in August 2021. As shown in Figure 1, consumers drew down excess savings at a rate of about $85 billion per month in the first quarter of 2023.

Figure 1 | Some Low-Income Earners May Deplete Savings This Year

Bar chart showing low-income earners may deplete their savings accounts in 2023.

Data as of 2/28/2023. Data for 2023 and 2024 is estimated. Source: U.S. Bureau of Economic Analysis, Rubinson Research estimates. Normal uses each cohort's average savings level for 2015-2019. We grow savings by 5% annually for cohorts with positive savings rates. For cohorts with negative savings rates, we hold the level steady to not compound a negative.

The following 12 months should clarify whether the much-anticipated recession materializes. Consumer spending has held a downturn at bay to a degree. But signs show consumers face increasing financial strains, particularly those who must start repaying their student loans again.

  • The Consumer Financial Protection Bureau (CFPB) reports that more than one in 13 student loan borrowers are delinquent on their other payment obligations. Additional pressures include: Some 20% of student loan borrowers have risk factors that point to financial difficulties when payments resume.2

  • Tax refunds are down nearly 9%.3

  • Emergency allotments that increased benefits under the Supplemental Nutrition Assistance Program (SNAP) during the pandemic expired earlier this year.4

Retailers May Take a Hit When Student Loan Payments Resume

Summer break is winding down, and students at all levels will start heading back to class. That’s typically good news for a store like Target.

But the expiring student loan moratorium may dampen a normally prosperous season for the national retailer. KeyBanc Capital Markets in June downgraded Target because of the expected strain that student loan payments will have on consumers.

KeyBanc thinks Wall Street overlooked the effect student loan payments will have on discretionary spending when conditions for households start deteriorating.

It’s also possible that Wall Street overestimated the likelihood and severity of a recession, with more forecasters backing off predictions of second-half economic gloom.

But if a downturn materializes, borrowers may have less money to spend on discretionary items. However, consumer staple stocks should hold up well as consumers will still buy things they need.

Consumer Staples Firms Should Withstand Consumer Headwinds

Kimberly-Clark Corp., which makes personal care and tissue products — think diapers, paper towels and facial tissues — is likely better positioned to withstand consumer headwinds. Kimberly-Clark's stock price has stayed relatively even over the last five years. According to FactSet, its current dividend yield is 3.4%, and the company’s history of dividend growth goes back more than 20 years.

Kimberly-Clark CEO Michael Hsu was asked earlier this year at the Deutsche Bank Global Consumer Conference whether the company could stick with its product pricing as conditions for consumers weaken.

Volume ... has held up pretty well, right? And a lot of that is because these are essential categories.
Michael Hsu

Despite Economic Challenges, Consumer Staples Show Resilience

Irrespective of a potential recession, consumers will likely face headwinds in the second half of this year. Data points to eroding discretionary spending power, which presents a troubling environment for retail stocks.

But we think a persuasive case remains for consumer staples. While we noted that consumer savings are depleting, there should be enough to support a reasonable level of spending. And while consumers will likely face difficulties with the return of student loan payments, sticky inflation and other pressures on household cash, it’s not enough to cause consumers to ditch the products they need for everyday life.

Mike Rode, CFA
Mike Rode, CFA

Vice President

Senior Investment Director

Are You Ready for What’s Ahead?

We’re here to help you prepare your portfolio for all conditions.


Matthew Fox, “The stunning strength of the U.S. consumer is at risk as 43 million borrowers are set to resume student loan payments,” Business Insider, May 16, 2023.


Thomas Conkling and Christina Gibbs, “Update on student loan borrowers as payment suspension set to expire,” Consumer Financial Protection Bureau Office of Research Blog, June 7, 2023.


Bradley B. Thomas and Zachary Donnelly, “Hardlines/Broadlines: 2023 Tax Refunds Lower, April Remains Weak Following the Filing Deadline,” KeyBanc Capital Markets, May 2, 2023.


Rachel Mackey and Zachary Stoor, “Pandemic-Era SNAP Benefits Expire,” National Association of Counties Blog, March 13, 2023.

References to specific securities are for illustrative purposes only and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.