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How will student loan repayments impact Gen-Z consumer behavior?

The fall is a particularly stressful time of year for many reasons, but this year’s student debt relief plan presents greater financial burdens for those who took out student loans. Over the summer, President Biden’s 430-billion-dollar student debt relief plan was struck, disappointing over 40 million borrowers (Bravin, 2023). Now, this October marks the re-beginning of student loan payments of over 1.6 trillion dollars of student debt. Most of this debt is held by those aged 30-39 years, but around 22 percent is held by Gen-Z (Ettenheim, 2023). As a fourth-year undergraduate student, I have lived in an unprecedented grace period of repayment hiatuses, as well as forgiven interest on loans disbursed during the COVID-19 pandemic. Student loan payments, high-interest rates, and increasing inflation have business leaders and consumers concerned about what the future will hold for Gen-Z spenders.


Historically, companies within industries reliant on discretionary income would be concerned about decreased sales at this time, but Gen-Z’s unusual spending habits could prove this expectation wrong

As a finance student, I was curious how this would impact Gen-Z spending habits, as many of us will be facing student loan bills in the fall. Williams-Alvarez for the Wall Street Journal noted that businesses are curious about this as well, reporting that during Q2 earnings calls from early July through the end of August, “mention of student loans was up 268% than from the previous year,” (Williams-Alvarez, 2023). This suggests that many companies are wondering if consumers will continue with the same spending habits. Leaders of GAP, Footlocker, and Macy’s foresee fewer sales, but leaders of Chipotle and beauty company Coty are not worried (Williams Alvarez, 2023). Historically, companies within industries reliant on discretionary income would be concerned about decreased sales at this time, but Gen-Z’s unusual spending habits could prove this expectation wrong.


Despite the investment bank UBS expecting borrowers to decrease spending in the apparel, entertainment, and travel categories, it is important to account for Gen-Z spending habits (Johnson, 2023). Gen-Z is estimated to hold around 360 billion dollars in discretionary income, which could be impactful for changing outlooks in sales for the upcoming months (Johnson, 2023). Despite the current economic climate of high-interest rates and inflation, Gen-Z has continued to spend income on non-necessities, especially entertainment. While households cut their grocery lists this summer, 41 percent of Gen-Z said they were planning on spending money on entertainment this year, such as on concerts or music festivals (Hall, 2023). In my own interactions, I have heard across my campus repeated sentiment about the lack of hope in owning property, which is a milestone that many previous generations saw as attainable. This generation is much more interested in spending money on improving everyday life (McKinsey, 2023). This is shown by Gen-Z’s spending, “an outsized portion of their income on eating out, mobile devices, transportation, and housing,” (NCR, 2023). While many of these items are necessities, eating out is something that Gen-Z may not cut when faced with student loan bills. Maybe Chipotle’s CFO Jack Hartung is correct in his statement that their $9 burrito will not be where consumers cut back (Williams-Alvarez 4).


October is the first time borrowers will receive a student loan bill since 2020, so it is unclear what the future holds for businesses that typically market to college-aged consumers. Compounded with high inflation and interest rates, it is difficult to make an accurate prediction of how these events will play out, especially for Gen-Z. We are often misunderstood by previous generations because of our differing attitudes, behaviors, and now our spending habits, so this is not new to us. Businesses like Chipotle know that with their low price point and ease of access, they will not lose us, so other companies should follow suit by appealing to what Gen-Z cares about to ensure Gen-Z business.



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