The student loan repayment tsunami: How test and learn can help retailers survive

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With student loan repayments resuming this fall, many retailers are already bracing for impact. See how test and learn software is equipped to help retailers prepare.

When will student loan repayment resume?

In the United States, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was passed in March 2020, provided temporary relief for federal student loan borrowers.

Under the CARES Act, all federally held student loans were placed in an administrative forbearance, which means borrowers were not required to make payments and interest on the loans was temporarily set to 0%. This forbearance period was initially set to last from March 13, 2020, to September 30, 2020. However, the duration of the forbearance was extended nine times through executive action and legislation, such as the continuation of the relief measures under the CARES Act, the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act of 2021.

Unfortunately, with the latest debt ceiling deal no further extensions have been granted. On September 1, interest will once again start accruing, and payments will be required from borrowers in October. Because President Biden’s relief plan that could cancel up to $20K in student debt is currently being debated in the Supreme Court, borrowers are being counseled to plan and prepare for repayments to resume in the fall.

A student sits at a desk looking at a computer screen with his head in his hands. Stickers are on the back of the screen and a coffee cup is on an adjacent table. The pending resumption of student loan repayments will likely stress both individuals and retailers.

How will loan repayments impact retail?

Many are bracing for the economic impacts this could have on the retail industry. Brian McGough, co-founder of Hedgeye explains, “You have a lot of households where the husband and wife are both carrying student debt. Ultimately you get a 1.7% rate of consumer spending hit, which is going to be very, very damaging.” McGough also points out that only 6.4% of the debt is held by people 25 years and younger. The largest amount of debt, 39%, is held by 35-49 year olds, with 50+ year olds holding 25% of the debt, and 24-34 year-olds holding 30% of the debt.

The financial burden of student loan repayment has the potential to affect the retail sector in the following ways:

  1. Reduced purchasing power
    When borrowers have significant student loan debt, it can limit their discretionary income and ability to spend on non-essential items. High monthly loan payments can divert funds away from retail purchases, affecting consumer spending patterns. This reduction in purchasing power can have a negative impact on the retail sector, especially for retailers that rely heavily on consumer discretionary spending.
  2. Delayed major purchases
    Student loan debt can also delay major purchases, such as homes, cars, and durable goods. Borrowers may prioritize paying off their student loans or managing their debt burden before making large purchases. This delay in major purchases can affect industries closely tied to consumer spending, such as real estate, automotive, and home furnishing sectors.
  3. Altered consumption patterns
    Student loan borrowers may adopt different consumption patterns compared to those without significant debt. They may prioritize essential expenses, such as rent, utilities, and loan payments, while reducing spending on non-essential items. This can lead to a shift in consumer behavior, impacting the types of products and services that are in demand within the retail sector.
  4. Impact on creditworthiness
    High levels of student loan debt can affect borrowers’ credit scores and overall creditworthiness. This can limit their access to credit or result in higher interest rates for loans, including those used for retail purchases. Reduced access to credit or less favorable loan terms can further constrain consumer spending in the retail sector.
  5. Market segmentation
    Student loan debt can contribute to the segmentation of the retail market. Younger consumers with significant student loan debt may have different shopping habits and preferences compared to older generations. This can lead to changes in the types of retailers and products that are successful in capturing the attention and purchasing power of these consumers.

How test and learn can help retailers stay afloat

Test and learn strategies can be beneficial for retailers as student loan repayments resume by providing them with insights and data-driven approaches to adapt and optimize their business strategies. Here’s how test and learn can help:

  1. Customer behavior analysis
    As student loan repayments resume, it’s important for retailers to understand how this might impact their target audience’s spending patterns. Test and learn methodologies can help retailers analyze customer behavior by conducting experiments and collecting data. By tracking customer preferences, purchase patterns, and changes in spending habits, retailers can adjust their marketing, pricing, and product strategies to better align with the evolving needs of customers who have resumed loan repayments.
  2. Product assortment optimization
    Test and learn approaches can help retailers evaluate the performance of different product offerings as student loan repayments resume. By testing different assortments, pricing strategies, or promotional activities, retailers can identify which products are most appealing to customers who may have limited discretionary income due to student loan repayments. This allows them to optimize their product mix and allocate resources effectively to meet customer demand.
  3. Pricing and discount strategies
    Student loan repayments can impact customers’ price sensitivity and willingness to spend. Retailers can leverage test and learn methodologies to experiment with different pricing strategies and discounts to find the right balance that attracts price-conscious customers without compromising profitability. By testing various pricing scenarios and evaluating customer responses, retailers can identify optimal price points and promotional strategies.
  4. Targeted marketing campaigns
    With the resumption of student loan repayments, retailers can use test and learn techniques to refine their marketing campaigns. By testing different messaging, channels, and offers, retailers can identify the most effective marketing tactics to reach and engage customers who have resumed loan repayments. This allows them to allocate their marketing budget more efficiently and ensure their messages resonate with the target audience.
  5. Store format and layout experiments
    As retailers adapt to changing consumer behavior, they can use test and learn methodologies to experiment with store formats and layouts. By testing different store configurations, product placements, or experiential elements, retailers can understand how to create an appealing shopping environment for customers who may have limited spending capacity due to student loan repayment. These experiments can help retailers optimize the in-store experience and enhance customer satisfaction.

By leveraging test and learn strategies, retailers can make data-driven decisions, minimize risks, and adapt their strategies to meet the changing needs and behaviors of customers who have resumed student loan repayment. This approach allows them to stay agile, identify new opportunities, and maintain a competitive edge in a dynamic retail landscape.

Want more insights into how test and learn can support your retail needs? Check out these resources:
How A/B testing supports in-store retail media networks
Leveraging test and learn to combat theft in stores
Enhance decision-making with test and learn software

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