John Coughlin
The views expressed are those of the author and references to any specific product or entity does NOT constitute an endorsement or recommendation by the author. The author is not affiliated with Invstr, and the opinions are not those of SILLC/ IFLLC.
As Covid-19 spread across the United States in 2020, subsequently shutting down the largest economy in the world, the country’s historically low unemployment rate peaked at a historically high rate of 14.7%. As a result, Congress passed The Coronavirus Aid, Relief, and Economic Security (CARES) Act (2020) to assist “American workers, families, small businesses, and industries.” Under this sweeping act, a 0% interest on almost all Federal Student loans was implemented on March 13, 2020. Over three years later, with the United States economy near-record low unemployment and the Federal Funds rate at historic highs, the student loan moratorium is ending, which could have consequences for the U.S. economy.
According to the Education Data Initiative, the average monthly student loan payment before the moratorium was $503 for the 92.9% of borrowers who could meet their monthly payments; This three-year moratorium represented over $20,000 in forgone expenses. The extra spending power for 3.3 million 25 to 34-year-olds allowed for more expenditures in the entertainment and food industries. From Q1 of 2020 to Q1 of 2023, DoorDash, the food delivery service, saw revenues rise five-fold, from $362 million to $2.035 billion. While the boost in their revenue primarily came from lockdowns and a broader acceptance of remote work policy in the United States, the continued revenue growth of DoorDash exhibits the combined impacts of remaining stimulus and forgone student loan payments.
As student loan payments resume, the U.S. Personal Savings Rate will be a crucial metric to watch, which sits at 4.6%, down from its pandemic high of 33.8% and 2019 level of 7.8%. With payments due monthly, student loan payers must be more financially responsible for paying off their loans. Thus, a rise in the saving rate could slow the revenue growth of DoorDash and similar fee-based companies, which were once the darlings of the pandemic and stimulus era. Although, the immediate effects of this resumption will not likely be felt until 2024, as the Biden Administration has implemented rules to help struggling debtors. According to the U.S. Department of Education, an “on-ramp” repayment system has been instituted, which prevents debtors from defaulting on their loans from October 1, 2023, to September 30, 2024.
While the student loan moratorium has not officially ended, debtors and companies must start preparing for a different budget and business cycle, respectively. With millennials and Generation Z making up 30.39% and 6.38% of the National Student Loan Debt, the impact on businesses popular among the two generations could be significant. As DoorDash and similar technology companies struggle to post profitable quarters even with ballooning revenues, resuming student loan payments could push profitability forecasts out further, discouraging shareholders.
