Student-loan borrowers are about to be thrown back into repayment, and the economy will suffer — especially if Biden's debt cancellation is struck down

• Education Secretary Miguel Cardona has confirmed student-loan payments will resume this year.
• The resumption risks jeopardizing the post-pandemic economic recovery and straining consumers' wallets.

Student-loan payments are resuming this year. It's likely going to hurt not just borrowers, but the entire US economy.

In March 2020, former President Donald Trump first implemented the student-loan payment pause to give borrowers financial relief during the pandemic. Trump and President Joe Biden since extended it multiple times — Biden in November most recently extended the relief through 60 days after June 30, or 60 days after the Supreme Court issues a final decision on the legality of the president' plan to cancel up to $20,000 in student debt for federal borrowers, whichever happens first.

And the most recent extension is very likely to be the final one. Education Secretary Miguel Cardona told lawmakers in early May that "we're going to resume payments for 60 days after, but no later than June 30. We're going to begin that process."

"We're confident, Senator, that the Supreme Court will rule in favor of the targeted debt relief, providing relief for millions of borrowers, and we want to make sure that the information that borrowers get is accurate. We do plan on making sure it's a smooth reentry to repayment," Cardona said, adding that "the emergency period is over, and we're preparing our borrowers to restart."

Biden also agreed to codify the end of the student-loan payment pause in the debt-ceiling deal he reached with Speaker of the House Kevin McCarthy, suggesting the president did not deem additional relief necessary for borrowers this year in connection with COVID-19.

But some economists think the administration — and the country — should start prepping for an economic strain once payments resume. Marshall Steinbaum, senior fellow at the Jain Family Institute and economics professor at the University of Utah, told Insider that "it's pretty clear the payment pause has been very stimulative to the macroeconomy."

"I think it's clear that the fact that people have more spending power means they can spend more, and that's good for aggregate demand," Steinbaum said. But he added that if the government starts to try collected on student loans that borrowers are unable to repay, "it's just a more onerous way of operating a lending portfolio of trying to collect debt that fundamentally can't be collected and trying to squeeze the borrowers as much as possible in order to make that debt collectible. And that's very bad for the macroeconomy."

'We're looking at a pretty severe fiscal contraction'

Steinbaum previously told Insider that the economy has been "more than fine" without borrowers' student-loan payments. The Education Department previously estimated that the pause put about an extra $5 billion back into borrowers' pockets, giving them more economic freedom to not only buy a car, house, or other big expense — but to also leave their jobs in pursuit of better opportunities.

Those positive economic impacts could quickly be reversed once payments resume. "We're looking at a pretty severe fiscal contraction," Steinbaum said.

And Mark Zandi, chief economist at Moody's Analytics, told CNBC on Tuesday that restarting student-loan payments after an over three-year pause would stunt economic growth and strain consumers' wallets.

"I don't think a recession is going to happen, and I don't think the student-loan payments are going to be the thing that pushes us in. But they're a weight, it's about 20 million student-loan borrowers that haven't been paying, they'll have to begin paying more or less in September," Zandi said.

"So if you do a little bit of arithmetic, it'll shave a couple tenths of percent off of GDP over the coming year. Now, in a more typical time, that's not really that big a deal," Zandi added. "The economy can digest that gracefully. But in the current environment with the economy as weak as it is, recession risks as high as they are, a couple of tenths of percent can matter. I don't think that this is what's going to push us in, but it's certainly a weight at a pretty significantly inopportune time."

The economy has made strides in recovery since the beginning of the pandemic, with employment returning to pre-recession levels much faster than in the wake of the 2008 financial crisis. The student-loan payment resumption risks jeopardizing that recovery.

The Supreme Court decision will be a major factor in economic impacts

The Supreme Court heard oral arguments in the two conservative-backed cases that paused the implementation of Biden's broad student-debt relief in February, and since then, millions of borrowers have been waiting for a final decision on the legality of the relief — expected by the end of June.

Democratic lawmakers have been sounding the alarm on the harmful impacts a payment resumption would have without Biden's broad debt relief. Massachusetts Rep. Ayanna Pressley previously told Insider that she would "absolutely" push for a payment pause extension should the Supreme Court strike down the loan forgiveness, saying that the pause has "been game changing and transformative for so many people. By eliminating that bill, I mean, do you all understand that there are people that are paying monthly student loan bills that are the equivalency of a mortgage?"

And Rep. Ro Khanna wrote on Twitter on Tuesday that "resuming student loan payments without providing relief will be devastating for 45 million borrowers. It is wrong to forsake students."

Still, many Republican lawmakers have continued to push for borrowers to resume their payments — even before the Supreme Court issues its final decision. Last week, the House passed a bill to overturn Biden's debt relief and immediately end the payment pause, and the Senate on Thursday voted to pass the measure. But regardless of when exactly payments resume this year, borrowers and the economy will likely suffer.

"The repayment pause causes people to get mortgages, get car loans, all of the things that if you're looking for macroeconomic stimulus from a repayment pause that you would expect," Steinbaum said. "So I greatly fear the end of the repayment pause, especially if cancellation doesn't happen either."