Student loan repayment set to alter consumer spending. Introduced in early 2020 at the onset of the health crisis, the CARES Act froze repayment and interest accumulation on federal student loans. Borrowers with these loans have not been required to make monthly payments since the freeze. Building off this student debt relief, the Biden administration introduced a forgiveness plan for qualifying borrowers. If implemented, the plan could wipe away between $10,000 and $20,000 of federal debt for eligible borrowers. Uncertainty surrounds the plan, however, as it faces challenges in court. At the end of February, the Supreme Court heard arguments on the legality of the loan forgiveness aspect of the plan, but a ruling may not come until as late as June. Whether or not the Court allows some debt forgiveness, loan repayments will begin 60 days after the announcement. The return of this fixed expense that many households have not contended with in three years will likely weigh on consumer spending, stacking on top of existing inflation pressure and recessionary fears.

Student loan debt has multi-generational effect. The Federal Government holds approximately $1.6 trillion in student loan debt, which is distributed among 44 million borrowers. For those with a bachelor’s degree, the average monthly student loan payment is around $267. The negative repercussions of this level of student loan debt are already prevalent among millennials and could begin to impact the older members of Gen Z. This cohort began graduating and entering the workforce during the pandemic and may have never made student loan payments. The volume of student debt holders is substantial enough that the impact of repayment will lower the purchasing power of both cohorts. Based on the historical impact of student loan debt on personal finances observed in the millennial generation, three main property types are likely to be affected by resuming repayment: multifamily, retail and hospitality

Borrowers stay in the renter pool longer. Student loan debt has been shown to delay life events, including first-time home purchases. Multifamily properties may, therefore, see advantages from the resumption of debt payments as consumers with student debt are likely to rent longer. This adds to other factors making the transition to homeownership more challenging, such as limited for-sale listings propping up asking prices and elevated mortgage rates. The affordability gap, or the difference between a monthly payment on a median priced home and monthly average effective rent, is widening. At the end of 2022, this metric was around $1,142, the highest difference since at least 2000, emphasizing the comparative affordability of renting. Millennial homeownership already lags earlier generations at the same age, a trend that may pass on to Gen Z as the cohort faces the same financial strain as the preceding generation. An adverse effect of student loan repayment on the property type should, however, be noted. Household formation could slow as borrowers potentially delay moving out of their parents’ house or opt to split costs with roommates.

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*The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice. Sources: Marcus & Millichap Research Services; CoStar Group, Inc.; Federal Reserve; Moody’s Analytics; Education Data Initiative; Experian; National Center for Education Statistics