Student loan defeat adds to headwinds for economy

WASHINGTON — The US Supreme Court's striking down of President Joe Biden's student loan forgiveness plan puts nearly half a trillion dollars of debt back on household balance sheets, a burden that combined with the end of a pandemic-era pause in payments on education loans may hasten an anticipated year-end economic slowdown.

The court's 6-3 ruling on Friday, which had been widely expected to go against Biden, came just weeks after the White House and congressional Republicans struck a deal to lift the federal debt ceiling that included prohibiting any further extensions of the student debt payment hiatus put in place in early 2020 at the onset of the COVID-19 pandemic. Loan payments would resume in October, the Education Department said recently.

That means US households, which collectively owe $1.6 trillion in education debt, must restart making hundreds of dollars a month in loan payments for the first time in more than three years. New York Fed research earlier this year said about $440 billion in loans were eligible for relief, and if they had been permanently eliminated it would have left 40 percent of student loan borrowers with no student loan debt.

Resuming student loan payments will cost US consumers $18 billion a month, the investment company Jefferies in New York has estimated. The hit to household budgets is ill-timed for the overall economy, Jefferies said, because the United States could be on the brink of a recession.

Despite the student loan moratorium, US people mostly did not bank their savings, said Jefferies economist Thomas Simons. So they will likely have to cut back on other things, such as travel and restaurants, to fit resumed loan payments into their budgets. Belt-tightening could hurt an economy that relies heavily on consumer spending.

On Friday, Biden vowed to push ahead with a new plan providing student loan relief for millions of borrowers.

"These Republican officials just couldn't bear the thought of providing relief for working class, middle class Americans," Biden said. "The hypocrisy of Republican elected officials is stunning."

Agencies Via Xinhua