As of June 2023, American consumers held a total of $1.6 trillion in federal student loans. While the pause in payments over the past three years offered some financial relief, the difficult COVID-19 job market and rising prices on everyday goods left many beneficiaries of the pause with just enough to make ends meet. How will the resumption of student loan payments impact other spending and saving behaviors among affected borrowers? Read on to learn more about:
- Who is most likely to have student loans?
- How did the student loan pause impact consumer behavior?
- How will shoppers react when student loan payments resume?
- Which categories are most at risk when student loan payments resume?
- Which brands or retailers are most popular with student loan borrowers?
- What would borrowers have done if their student loans were forgiven?
- How can brands and retailers navigate the end of the student loan payment pause?
Who is most likely to have student loans?
Currently, about 17% of adults in the United States carry student loan debt. Roughly two-thirds (65%) of borrowers are between the ages of 25 and 49, and this group accounts for 69% of outstanding student loan debt, according to the latest statistics from the Department of Education. Borrowers are more likely to be Black, Hispanic, or female compared to those who completed their higher education with no loans.
In a Numerator survey of 5,000 consumers with two-year, four-year and/or graduate degrees, 65% of respondents said they had taken out a student loan for their education, and 54% still carried a balance. Among those aged 25 to 54, 70% had taken out student loans and 48% still carried a balance. Two-fifths (42%) of consumers in this age group expect to be making monthly payments when the student loan moratorium ends, making them the most concentrated group of borrowers based on demographic targeting alone.
How did the student loan pause impact consumer behavior?
When the student loan payment pause went into effect in early 2020, millions of consumers were able to shift their would-be loan payment dollars to other expenses without risking default. While 62% of eligible borrowers say they decreased or paused their payments completely during this period, another 38% maintained or increased their regular payments, taking advantage of the interest-free time frame to pay down their balances.
Among those who paused or decreased payments, over half say they put the money towards everyday expenses like rent, utilities, or groceries instead. A quarter used the pause to pay down other debts like their homes, cars, or credit cards, and a tenth put the money into savings. Many individuals shared that the pause allowed them to afford necessities as inflation pushed prices higher. In their own words, here’s how a few consumers used the money they would’ve otherwise put toward student loan payments during the pause:
- “The increase in prices and inflation since the pandemic have been crazy high, pausing my payments helped me afford the huge increased costs of everything.”
- “I used it to pay bills such as rent, food costs, car payment, and other necessities I would not have otherwise been able to afford during the shut down and after.”
- “Paid my bills and mortgage. Electricity and gas increased so there was no opportunity to save the extra money.”
- “To buy groceries, pay my utilities, and be able to make it paycheck to paycheck.”
- “I used it to pay my credit cards. Thanks to this, I was able to completely pay off 2 credit cards.”
Fewer than one-in-ten borrowers who paused payments mentioned putting their money towards larger, discretionary purchases such as home improvements, appliances or vacations. Individuals who used their pause money for discretionary spending were more likely to have four-year or graduate degrees and higher income levels, making them more financially flexible to begin with.
How will shoppers react when student loan payments resume?
Consumers tend to follow predictable patterns when faced with tighter budgets. Our recent work on consumer economic sentiments showed that most shoppers search for coupons, promotions and sales as their first money-saving measure, followed by decreasing their spend on non-essential items or activities. These behaviors differ across income levels, with higher income households opting to stock up on sale items or search for coupons before they resort to cutting non-essential spending.
When loan payments resume, we’ll likely see a number of impacted shoppers seeking out savings on their everyday necessities, which they’ve been supplementing with would-be loan payments for the past few years. This could mean looking for discounts on their preferred brands and products, switching to lower-priced items or switching to retailers with better perceived savings. Brands could explore running targeted promotions on everyday items to ease the burden of impacted shoppers.
Which categories are most at risk when student loan payments resume?
Discretionary categories are usually the first to go when consumers look for ways to cut down on spending. Our monthly consumer sentiment tracker has consistently shown the top five “cut-back categories” as restaurants, travel, apparel, electronics, and snacks & candy. However, since most borrowers used the student loan payment pause to pay down other debts or to cover other essential spending, it’s unlikely we’ll see a large impact on discretionary categories as a direct result of payments resuming.
More likely, impacted shoppers will cut back on core CPG spending. Shoppers with current student loans are more likely to choose national brands over store brands and to stick with brands they know. However, they hold positive views of store brand products, with nearly two-thirds of this group saying they think store brand products offer an above-average value for their money. As borrowers look for ways to save on their everyday expenses, they may shift some of their CPG dollars away from national brands to take advantage of the store brand value proposition.
Which brands or retailers are most popular with student loan borrowers?
Any brand or retailer with a shopper base that skews towards 25–54 year olds with higher education will be more at risk of seeing impacts from the end of the student loan payment pause. For example, Target is more popular among shoppers with higher levels of education than those without, and is also more popular with those in the 25–54 age group, meaning it faces a higher risk than Walmart, which is less popular with both of these groups.
Given their overall younger ages and slightly higher incomes, student loan borrowers are more likely to shop online than the average consumer. They use online ship-to-home, click-and-collect (buy online, pick up in store), and subscription services more regularly than other shoppers, in addition to looking more favorably on online shopping as a whole. Online deals will be especially appealing to members of this group who are looking to save money when loan payments resume.
What would borrowers have done if their student loans were forgiven?
About 58% of the borrowers we surveyed expected to be eligible for the student loan forgiveness program announced in 2022. Prior to the plan being struck down by the Supreme Court earlier this year, many shoppers had already thought through the impact it would have on their finances. Most hoped it would improve their credit score, allow them to pay down any remaining balance more easily, or give them the opportunity to focus on paying down other debts. A number of shoppers mentioned freeing up money for car or home down payments, which they’ll now have to put off longer as they focus on their student loans.
How can brands and retailers navigate the end of the student loan payment pause?
There are a number of steps brands and retailers can take to prepare for and move through the student loan situation. Here are five things brands can do to as the payment pause draws to an end.
- Know your relative risk. Use demographic information to build out a comprehensive profile on your shoppers. What portion of them have completed some level of higher education? What age or income brackets do they fall under? Doing so can help you understand how much—or how little—your business may be impacted when payments resume.
- Identify confirmed borrowers. Surveying your shoppers about their current student loan status can provide you with valuable profiling and tracking abilities. Limit your survey pool to verified buyers of your brand and those with higher education to make the most of your research budget.
- Prepare to promote. Deal-seeking on everyday goods like groceries, household essentials, pet products and baby items is likely to be the top response when student loan payments resume. Brands and retailers can capture spend and goodwill by tailoring your promotional strategy to meet consumer needs during what may be a difficult financial period.
- Meet shoppers online. Digital advertisements and promotions will allow your brand the most flexibility should you need to adjust your strategy on the fly. A digital strategy also puts you in close proximity to the young consumers who are most likely to have student loans— these consumers favor online shopping and are most influenced by online and social media advertising.
- Track pre and post-pause behaviors. Brands who keep a pulse on their performance with student loan borrowers as soon as payments resume will put themselves in the best position to understand and adjust their strategies ahead of competitors.
Measure the impact on your brand with Numerator
Although there’s a degree of uncertainty around the full impact of student loan payments resuming, preparation and ongoing monitoring is the best way for businesses to minimize potential profit and share losses. Numerator is here to help, with verified shopper surveys, promotional insights, consumer behavior tracking, and market share measurement. Start the conversation with your Numerator representative or reach out to our team to learn more. Subscribe below for ongoing insights into the latest consumer trends, including any future work focused on the impact of student loans on consumer spending.