The Biden administration is considering extending a pandemic freeze on American student loan payments beyond its scheduled September expiration and taking gradual measures to lower its student debt bills.
Five months into office, President Biden has resisted calls by Democrats and activists for an executive move to erase most of the US $ 1.6 trillion in one fell swoop. It also seems unlikely that Congress will go ahead with it, given the Democrats’ lack of the Republican support they would need for such a move.
However, many Americans are effectively seeing their debt bills reduced by policy changes that began under the Trump administration, which froze student loan payments as the March 2020 pandemic spread to tens of billions of dollars in student debt that families would otherwise have paid , mostly by foregoing interest fees.
Mr Biden’s education minister, Miguel Cardona, told a congressional body last month that the government was considering extending the payment freeze beyond September. When asked for a comment on the possibility, an administrative official said that Mr. Biden “continues to examine what debt relief measures can be administratively taken”. The official reiterated Mr. Biden’s desire that Congress pass a bill to cancel $ 10,000 in student debt for every federal borrower. Administrative attorneys are examining whether the president has the authority to cancel debts through executive action, the official said.
Education Minister Miguel Cardona told a congressional body last month that the administration is considering extending the student loan payment freeze beyond September.
Photo:
Rod Lambey – CNP / Zuma Press
Last month, the Department of Education canceled $ 500 million in student debt owed to thousands of former students at the defunct ITT Technical Institute who federal regulators accused of financial mismanagement and fraudulent recruitment tactics. The ministry has announced that it will streamline federal regulations later this year to allow more aggrieved borrowers who have attended other for-profit schools to have their debts canceled.
The administration is also looking for ways to allow more borrowers to cancel their debts under a federal law that removes debt from public service workers, Richard Cordray, who oversees the student loan program as head of the Department of Education’s student aid bureau. said last month.
As a presidential candidate, Mr Biden advocated halving the amount tens of millions of borrowers pay each month through one of the government’s most popular repayment programs known as income-driven repayment.
More than 43 million Americans owe a total of $ 1.6 trillion in federal student loans. WSJ’s Josh Mitchell explains how President Biden plans to help borrowers manage this debt. Photo illustration: Carlos Waters (video from 01/12/21)
The combined effect of these steps would reduce American households’ monthly payments on their student loans by hundreds of dollars in many cases and reduce the number of years they make payments.
The payment freeze increases the federal government’s expected losses from its student loan portfolio. The government’s proposed budget for the fiscal year beginning October is that taxpayers will lose $ 68 billion in the long run due to lower repayment rates and pandemic control efforts, up from a forecast of $ 15 billion a year ago.
Forty-three million people owe $ 1.6 trillion in student debt, a sum greater than collective credit card or car debt. Most have not paid in more than a year as part of an initial experiment by federal politicians to use the student loan program as a form of economic relief during a crisis. The government stopped charging interest on student loans when it froze payments in March 2020.
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Getting Americans to resume their loan payments is likely to be a major challenge. About one in ten borrowers made student loan payments during the pandemic, according to Mark Kantrowitz, a college advisor. U.S. Postal Service Change of Address data says more households have made permanent moves across county lines during the pandemic, and this could make it harder for government contractors collecting student debt to track down borrowers.
Some borrower advocates say that many people cannot afford to resume their payments or are unwilling because they expect some or all of their debts to be canceled. But signs of life for such proposals – either in Congress or through action by Mr Biden’s executive branch – are zero, with both Mr Biden and the Senate Democrats pointing at each other for action. Senate Democrats have failed to implement a proposal, backed by Majority Leader Chuck Schumer (D., NY), to cancel student loans of $ 50,000 per federal borrower. In the evenly split Senate, 60 votes are required to pass most of the laws.
“I see them say, ‘I’m going to take out more loans and buy GameStop stock because they’re going to be given out anyway,’ which always scares me,” said Massachusetts advisor, Betsy Mayotte, a student debt adviser.
Brittany Shepherd, who owes student loans for two college degrees, says she started saving for retirement during the pandemic.
Photo:
Jerry Tsao
Brittany Shepherd, who works in healthcare in Washington, DC, said she owed more than $ 100,000 in debt that paid off her bachelor’s and master’s degrees. “I haven’t bought a house. I’m not married. I haven’t done any of these important things in life, ”said Ms. Shepherd, 36 years old. During the pandemic, she started saving for retirement. “I’ve just decided to protect my future self.” When her loan payments resume, she plans to take part-time jobs to keep up with the bills and retirement plans.
According to a US Federal Reserve analysis by the Brookings Institution, more than half of student debt is owed by college graduates. Such workers are the highest earners in society, as data from the Department of Labor shows, and have fared well compared to lower-educated workers during the pandemic. North Carolina Rep. Virginia Foxx, the top Republican on the House of Representatives Committee on Education and Labor, has said extending the pandemic freeze is unnecessary and would increase taxpayer costs.
Senator Elizabeth Warren, D., Massachusetts, who has urged Mr. Biden to take executive action to lend $ 50,000 per borrower, also wants the government to continue the payment hiatus through at least spring 2022.
“Hitting more than 40 million Americans with a monthly payment that for many is as high as their rent is going to be tough on them and tough on our economy,” Ms. Warren said in an interview. “This is not a light switch.”
Senator Elizabeth Warren has urged the Biden administration to continue the student loan payment hiatus through at least spring 2022.
Photo:
J. Scott Applewhite / Associated Press
Even without the lockdown, the government has programs to protect borrowers during troubled times, including the option to set their monthly payments as a proportion of their income. Under such programs, borrowers with poorly paid jobs or unemployed would pay little or nothing for their payments.
In the final months of the Democratic primary, Mr. Biden endorsed Ms. Warren’s idea of eliminating some of the Americans’ student debt and proposed an immediate US $ 10,000 per person student debt relief in response to the pandemic.
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“Hitting more than 40 million Americans with a monthly payment that for many is as much as their rent is going to be tough on them and tough on our economy.”
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Mr Biden also said he would cancel student debt for borrowers from low-income and middle-class families who attended public colleges and universities, historically black colleges and universities, and underfunded institutions that serve minority groups. “Democrats have to keep our promises,” said Ms. Warren.
The Democrats in Congress admit that they have few, if any, Republican allies in Congress in student debt relief. Senator Mitt Romney (R., Utah) said in a brief interview that after the pandemic ended, Americans should repay their loans “as promised”.
“Once the pandemic is over, the economy will be back in full swing,” he said. “The idea, ‘Oh, we really need to help the economy’ – I’m ready to do whatever I can to get out of the pandemic, but just pouring out cash and borrowing more money from China is not the right way to help the economy. “
Write to Josh Mitchell at joshua.mitchell@wsj.com and Joshua Jamerson at joshua.jamerson+1@wsj.com
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