Welcome to the home for real-time coverage of markets brought to you by Reuters reporters. You can share your thoughts with us at markets.research@thomsonreuters.com

US GDP BRACES FOR SUBTLE HIT AS STUDENT LOAN PAYMENTS EMERGE FROM THEIR PANDEMIC PAUSE

The U.S. Department of Education has restarted collection efforts on defaulted student loans after a five-year pause, potentially adding financial strain to millions of Americans and hampering GDP growth.

The government body, which paused student loan collections in March 2020 to provide financial relief during the COVID-19 pandemic, resumed collection activities on defaulted federal student loans to protect taxpayers and help borrowers manage repayments amid record-high delinquency rates and over $1.6 trillion in debt.

According to Morgan Stanley economists, this resumption could increase monthly payment obligations by $1-3 billion and potentially reduce U.S. GDP growth by 0.05-0.15 percentage points in 2025.

BFH BFH.N and SOFI SOFI.O have exposure to unsecured subprime loans and unsecured personal loans, respectively, as these segments face heightened risk, says Morgan Stanley, which holds an "underweight" rating on both companies.

However, SLM Corporation SLM.O presents potential upside despite possible credit quality concerns among private student loan borrowers.

The expected government pullback from programs like Grad PLUS could significantly expand SLM's total addressable market in private student loans.

The burden falls disproportionately on younger and middle-income Americans, with borrowers under 40 accounting for over half of all student debt.

Lower-income individuals are 3-4 times more likely to fall behind on payments than those earning over $100,000. Generation X carries the highest average loan balance at $44,240, slightly exceeding Millennials' $40,438.

For struggling borrowers, consequences include potential wage garnishment, offsets of benefits or tax refunds, and credit score drops of 90-170 points for newly delinquent accounts.

The collections could benefit Treasury finances by potentially extending the debt ceiling deadline until early October through increased government revenue.

However, consumer finance experts warn this represents "an incremental headwind to consumers" that reinforces caution toward the consumer finance industry.

The timing is particularly challenging as Americans already face inflation and high housing costs, raising questions about whether borrowers can adapt or if economic impacts might force policy reconsideration.

(Rashika Singh)

*****

TUESDAY'S EARLIER LIVE MARKETS POSTS:

U.S. STOCKS PULL IN THEIR HORNS AS FED MEETING KICKS OFF CLICK HERE

S&P 500 INDEX'S MOVING AVERAGE WALL TRUMPS WIN STREAK CLICK HERE

HIDDEN RALLY? MARKET BREADTH SURGES TO NEW HIGHS CLICK HERE

EUROPE INC: A 'WAIT AND SEE' REPORTING SEASON CLICK HERE

BANK EARNINGS POSITIVE BUT STOCKS BEHAVING STRANGELY - UBS CLICK HERE

HERE'S WHY THE BOE COULD BE SET FOR A HAWKISH SHIFT CLICK HERE

STOXX SLIPS, GERMANY AND EARNINGS IN FOCUS CLICK HERE

EUROPE BEFORE THE BELL: FUTURES MIXED CLICK HERE

DOLLAR SELLING TAKES A BREATHER CLICK HERE