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Growing Student Debt Expected to Hurt Retailers, Moody's Warns

August 25, 2016

NEW YORK — In the past seven years, the average student debt burden has grown by about 53%, according to a Moody’s report. That growth has brought student debt in the United States to more than $1.3 trillion, and that figure is expected to continue to grow.

The largest share of outstanding student loans is held by graduates age 30 to 39. Many of these graduates belong to the millennial generation, which, according to Pew Research, have overtaken Baby Boomers as the nation’s largest living generation.

"It's difficult to say exactly which segments of the retail sector will take the biggest hit as student debt takes an increasingly bigger bite from graduates' disposable income," said Charlie O'Shea, Moody’s retail analyst. "But it is safe to say that the only potential 'non-losers' are retailers that benefit from the 'trade-down' effect, such as discounters, warehouse clubs and dollar stores."

In the same seven years that yielded a 53% increase in student debt, graduate wages only increased by 3%, according to the report, "Retail – US: Retail Spending Faces Headwinds from Burgeoning Student Loan Obligations." This disparity between improved wages and the amount of debt graduates are coming out of college with is now eating into the disposable incomes of graduates.

Delinquency rates on student loans are the highest among consumer debt types, according to the report. Ninety-plus day delinquencies have increased about 3% from 2012 and now sit at 11%, Moody's noted.

Student debt, according to the report, has placed such a burden on graduates’ disposable income that more graduates are being forced to live with their parents after college.

"Our estimates indicate that reasonable amortization of this debt results in about $160 billion in annual payments, thus student loan obligations will have a definite negative impact on retail sales,” O’Shea said.

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