U.S. home goods retailers could bear the brunt of a retail slowdown as hundreds of thousands of cash-strapped young people put off setting up new homes, pressured by the resumption of expensive student loan repayments.

“The resumption of student loan payments remains a material headwind for consumers, which we have warned about extensively since June,” said lead analyst Bradley Thomas

COVID-19 Pandemic Relief Program Ends

Student loan borrowers were granted relief from repayments during the COVID-19 pandemic, but this relief period ended earlier this year.

Treasury receipts from the Department of Education (DoE) totaled $6.9B in October — a $5.7B increase from October 2022 when the relief scheme was still running. This, according to research by KeyBanc Capital Markets, represented an annualized $55B headwind compared to the payments made during the relief period.

“If these payments were fully removed from retail sales, it could be a 100+ basis points headwind to retail sales, skewed to more discretionary purchases,” said Thomas.

In 2019, the year before the pandemic struck, more than 45 million people collectively owed $1.6 trillion in federal student loans — an average of more than $350,000 per borrower.

Impact On Retail Sales

Using the DoE treasury receipt data and U.S. retail sales data, KeyBanc estimated student loan repayments represented 1.6% of retail sales in October.

“We believe the outlook for the low-income and middle-income consumer has deteriorated due to a reduction in excess savings, slowing jobs growth and a decline in consumer confidence,” Thomas added.

Young people looking to get a start on their own are likely to find it tough. Those saddled with student loans, who had until recently enjoyed a holiday from their repayment commitments, are likely to find it tougher still.

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