Earlier this week, I wrote about 4 current shocks to the US economy (tariffs, medical insurance increases, SNAP payments, and AI related layoffs), but I should have included a 5th as well: the effect of the end of the student loan repayment moratorium.

As a quick refresher, the Biden Administration enacted a student loan payment moratorium during COVID. That moratorium ended at the end of September 2023. As a result, monthly student loan payments rose from about $1 Billion per month to as high as $7 Billion:

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Unsurprisingly, the amount of student loans in serious delinquency rose sharply, from about 1% during the moratorium to almost 15% ( ! ) in Q3 of this year:

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Since student loans cannot be discharge in bankruptcy, one coping strategy is to allow other types of loans, such as credit card debt and auto loans, to go into delinquency. And that is what we have seen happen ever since the moratorium was ended:

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It’s unclear if this stressor has given rise to more bankruptcies or not. Via Bankruptcy Watch, here is the weekly YoY data as of last week:

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Put this together with the other shocks I described earlier this week, and it is a wonder the US was not already in recession even before the government shutdown started. It resembles very much the “austerity” program that was tried in the UK and other European countries after the Great Recession, which retarded their recoveries to a great degree.

Finally, I should note that there has been at least one very deep recession in the past caused primarily by fiscal shock; namely, the recession of 1938, which was largely due to the abrupt ending of some New Deal stimulus programs. That recession was not fully ended until World War 2-related industrial production surged.

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