Core Insights - The Biden administration's student loan deferment policy, which provided economic support during the pandemic, is set to end in September 2024, leading to a significant rise in default rates among borrowers [1][2] - The New York Federal Reserve estimates that nearly 10 million borrowers have $250 billion in overdue loans, which could trigger a substantial decline in consumer spending starting in Q2 2024 [1][2] - Bloomberg analysis predicts that this situation could reduce annual consumer spending by $26 billion to $63 billion, negatively impacting GDP growth by 0.1% to 0.4% [1][2] Consumer Spending Impact - The economic impact largely depends on the demographics of the borrowers who default; if 9.7 million borrowers default, it could reduce annual PCE spending growth by 0.1% to 0.3% [3] - In a worst-case scenario, consumer spending growth could be reduced by as much as 0.4% by the end of the year, with a significant slowdown in spending growth expected in the first quarter [3] - Bloomberg's baseline forecast indicates that consumer spending growth will cool to 0.8% in Q1, down from a previous estimate of 4.0% [3] Default Scenarios - If defaults occur primarily among middle to high-income households, annual spending could decline by $63 billion, particularly affecting purchases of vehicles and durable goods [4] - Households with annual incomes between $102,000 and $175,000 are critical, as they typically spend $6,000 to $10,000 on vehicles and $2,900 to $4,147 on durable goods annually [4] - If defaults are concentrated among low-income and subprime borrowers, the expected decline in consumer spending would be smaller, around $26 billion annually, mainly affecting non-essential durable goods and vehicle purchases [4]