The US Department of Education has restarted collections on defaulted student loans under President Donald Trump. This change may lead to billions of dollars being taken out of consumers’ pockets, particularly low-income Americans. According to JPMorgan, disposable personal income could be cut by $3.1 billion to $8.5 billion every month due to collections.
This policy shift may exacerbate existing financial stress for consumers who are already struggling with inflation and high prices. Consumer sentiment data shows that this issue is contributing to low spending numbers. Experts warn that the impact will be felt particularly hard by those on precarious financial footing, including subprime consumers.
Despite student loans accounting for only 9% of outstanding consumer debt, their share rises to 30% when excluding mortgages. Total outstanding student loan debt has increased to $1.6 trillion over the past decade. Nearly one in four borrowers are currently behind on payments, with the share of delinquent debt holders increasing to 8%.
JPMorgan estimates that almost 25% of all student loans will be defaulted if seriously delinquent borrowers also default. However, some experts argue that the impact may not be as significant for the overall economy, citing high-income earners as a major driver of post-pandemic economic growth.
Source: https://www.cnbc.com/2025/05/16/the-low-end-consumer-is-about-to-feel-the-pinch-as-trump-restarts-student-loan-collections.html