Student Loan Repayments & Inflation: Was My Theory Right?

Last fall, I mused on the 3-year forbearance of student loan repayments – it was my theory that consumer spending would decline once those loans became due again. I thought that while the impact might be small, perhaps it would help nudge inflation in the right direction.  

Loans have been due for 10 months now, so I thought I would check in on my theory.  

To be honest though… I’m not sure the direct impact of forbearance on inflation is “provable” – at least not with the resources that I have. So – we can just pretend I was proven right. 😊 

Regardless of the cause, we do know that have been meaningful changes in consumer spending, consumer savings, and inflation over the last year. Let’s take a look:  

1. Consumer spending 

This Bloomberg chart shows the massive pop in consumer spending after covid. The trajectory was just UP until the recent flatlining of shopping. 

Furthermore, if you adjust spending for inflation, shoppers have been buying LESS than they were last year (as seen in the other Bloomberg chart below). 

2. Consumer Savings 

“Well maybe people aren’t out shopping because they are saving their money! Good for them; they are finally being reasonable!” 

Is that true though? Let’s check. This data from the Bureau of Economic Analysis (U.S Department of Commerce) shows that after people pay their monthly bills and expenditures, they are saving just 3.9% of their income. 

Because I do like to prove myself right on occasion, could it be a coincidence that personal savings went down dramatically in September ’23 – the month that interest started to accrue again on student loans? Maybe – who  knows 😊 

3. Inflation  

Despite what it might feel like, reported inflation was actually DOWN .1% in the month of June. May was 0% – completely flat. Now, who knows if these last 2 months will continue, but it is certainly a welcome reprieve.  

At least the Fed seems to think that inflation is under control, as expectations are a slight decrease in rates this fall. 

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Now the question is – what do we do with this information? Honestly, I’m not sure. I just really like knowing what is going on. It protects my mind from the onslaught of headlines, hallway chatter, and Facebook posts spewing information that’s accuracy is unchecked. Largely, it is useful and fun for me to look back at thoughts and concerns I had in the past and see if they played out. 

I wouldn’t let statistics and current events worry you. Live below your means, save at least 15% of your income, give where you can, and odds are you will be OK. If you want to put pen to paper to see if you have planned well enough for more certain financial security, shoot me an email and we can talk!