Retail Giants Sounding The Alarm About Student Loan Payments Restarting

“Student loan repayments will put additional pressure on the already strained budgets,” Target’s CFO warns.

By Eric Gardner, More Perfect Union

Despite better-than-expected economic growth, two of the largest retailers in the U.S. are unsure about the future. 

One reason? Student loan payments are starting back up this fall.

“The upcoming resumption of student loan repayments will put additional pressure on the already strained budgets of tens of millions of households,” Target chief financial officer Michael Fiddelke told investors this week. “Against this backdrop, we remain cautious in our planning.” 

In March 2020, the CARES Act temporarily paused all student loan payments and lowered the interest rates on student loans to 0 percent. For almost half of all borrowers, this meant a de facto monthly savings of at least $200. For one in five, it meant at least $500 more in their bank accounts each month. 

“The pause means living a life that has dignity,” one borrower told ABC News in 2022. “I’m not paranoid every five minutes about my account going to a certain level.”

The pause was extended eight times across two presidencies, only to end as part of the May 2023 debt ceiling compromise. Earlier this summer, the Biden administration’s attempt to forgive $10,000 of student debt was rejected by the Supreme Court. All six justices appointed by Republican presidents decided against forgiveness. 

Now, most borrowers will see their payments start back up in October.

Early in the pandemic, boosted by stimulus money and the student loan pause, consumers flocked to retailers. In 2021, retail spending excluding cars increased by almost $1 trillion. Target doubled its profit in three years. But now, facing stubborn inflation and the resumption of monthly student loan payments, consumers are spending fewer dollars at the retailer. In its most recent quarter, Target sold 5 percent less than it did in the same quarter last year. 

Part of the decline has to do with the type of products Target sells. Consumers tend to shop there for discretionary items; about 80 percent of the company’s revenues come from apparel, personal care, and home goods. 

Walmart management echoed the same concern around student loan repayments, despite being less reliant on discretionary items since groceries account for more than half of its sales. “While inflation has moderated and employment levels have been steady,” CFO John David Rainey told investors, “some customers face additional expenses from the resumption of student loan payments in October.” 

The Arkansas-based giant has been one of the big corporate “winners” throughout the pandemic: revenue has increased 20 percent since 2019 and the company now captures one out of every four grocery dollars in America. An August 2023 survey from personal finance company Credit Karma found that 56 percent of borrowers will now have to choose between paying loans and buying necessities like groceries.

“Jobs, wages, and pockets of disinflation are helping our customers,” Walmart CEO Doug McMillon said. “But rising energy prices, resuming student loan payments, higher borrowing costs, and tightening lending standards, and a drawdown in excess savings, mean that household budgets are still under pressure.”

The pressure means that some borrowers will now pay more on loans than they will on housing. A recent Bloomberg article profiled a physical therapist in Kentucky with $94,000 in educational debt. After paying zero for three years, he will now owe $1,130 a month — nearly $300 more than his mortgage.

“It really does slow down a lot of your life decisions,” he said, “when you have such a big burden monthly to have to pay.”