Supreme Court Ruling on Student-Loan Forgiveness: Impact on the Economy

• Financial

In a landmark ruling that has sent shockwaves through the American public, the Supreme Court has delivered its verdict on President Joe Biden's student-loan forgiveness proposal. The decision is seen as a major setback for millions of federal borrowers, heralding potentially significant impacts on both individuals and the broader economy.

Weighing on The Economy

Renowned economist Mark Zandi expressed his views on the ruling's repercussions, downplaying the potential for an immediate economic recession. Despite this, he emphasized the gravity of the situation for student-loan borrowers who will have to resume payments in the upcoming months.

"They're a weight," Zandi stated, "it's about 20 million student-loan borrowers that haven't been paying, they'll have to begin paying more or less in September." Ethan Harris, Bank of America's global head of economics research, echoed Zandi's concern, suggesting a considerable risk of a resurgence in serious loan delinquencies.

He noted, "If payments were to resume in full, we think it is reasonable to assume that serious delinquencies would return to at least pre-Covid levels, since the share of seriously delinquent student loan balances was little changed between 2012 and 2019." Harris also cautioned that such a situation could create ripple effects across different categories of debt. "This would be a sizeable shock, and it would probably have knock-on effects to other categories of debt as well," he added.

The Strain on Borrowers

Turning from the macroeconomic perspective, Marshall Steinbaum, a senior fellow at the Jain Family Institute and economics professor at the University of Utah, provided a stark view of the human toll the decision could inflict.

Steinbaum's concerns reach beyond the potential contraction in consumer spending, centering more on the relentless burden this will place on individual borrowers. "It's just a more onerous way of operating a lending portfolio of trying to collect debt that fundamentally can't be collected and trying to squeeze the borrowers as much as possible in order to make that debt collectible," Steinbaum told Insider. "And that's very bad for the macroeconomy."