Debt Payments and Spending: Evidence from the 2023 Student Loan Payment

In October 2023, roughly 40 million Americans faced a new monthly bill as federal student loan payments resumed after a three-year pandemic-induced pause.1The restart of loan payments effectively reduced disposable income for borrowers, raising a critical question: How do debt payments affect household spending? Despite a growing academic literature studying the economic effects of student debt, there is surprisingly little empirical evidence on the link between student debt and household spending, largely due to data limitations.2And yet, understanding the effects of student debt on household spending is crucial given that consumption plays a central role in any measure of household well-being and is a key channel through which student loan policy may affect the macroeconomy.