Student-Loan-Repayment Reboot Could Be Costly for Apparel Retailers

One addition to the recently passed Fiscal Responsibility Act of 2023, which covered federal-government spending and debt issues, has been overlooked by consumers who have student loans, but they’ll feel the pain soon enough.

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Buried inside the bill is a mandate that public student loan debt payments, which have been on hold over the past few years due to the pandemic, must resume by the end of August. 

Correspondingly, the U.S. Supreme Court is due to weigh in on the validity of a Biden administration executive order to forgive up to $20,000 of public student loan debt for some 40 million borrowers.

Once payments resume and if the Supreme Court rules against the executive order, student-loan consumers may be forced to batten down the hatches and cut household spending to accommodate the extra monthly loan payment.

The Supreme Court could announce a decision on student loan forgiveness either on June 28 or June 29, which is the last date on the court’s calendar before the summer recess. (Under the court’s rules Chief Justice John Roberts could stretch the decision to next week, although he’s given no indication that he’d do so.)

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Apparel Retailers Might Be Hurt by Spending Cutback 

Meanwhile, the impact on student loan borrowers resuming payments is beginning to be assessed on household finances and the U.S. economy.

One industry in particular could take a major revenue hit if student loan payments resume in the second half of 2023 – the apparel sector.

If younger consumers who normally stock up on new shoes, shirts, and pants pivot to student loan payments, that creates a “big problem” for the apparel sector, a UBS research team led by analyst Jay Sole said this week.

According to a new UBS study on student loan consumer spending habits, loan consumers are more likely to have purchased apparel from Nike  (NKE) – Get Free Report than any other brand, Business Insider reported this week. High-end apparel makers like Calvin Klein and Under Armour  (UAA) – Get Free Report  (UA) – Get Free Report benefit from younger consumers, too, the UBS survey noted.

When these consumers are forced to choose between student-loan payments and household payments, spending on nonurgent items like clothing and going out to dinner lose out, the study concluded.

“Our new analysis of U.S. consumers with student loans suggests they are likely to disproportionately reduce spending on soft goods versus other categories as they shift funds to paying down student debt,” the UBS analysis stated. 

“Furthermore, these consumers prefer brands over private label and specialty retailers over discounters.”

That’s not good news for apparel retailers, especially with the critical holiday shopping season on the horizon. Right now, only the Supreme Court can bail out the industry.

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