The swirling debate over student loan forgiveness may soon reach a turning point, as another deadline to restart loan repayments for millions of Americans approaches this summer and the midterm elections loom.
President Joe Biden, whose pledge to forgive thousands of dollars in student debt for most borrowers helped get him elected, recently told reporters when asked about “the student loan decision,” that he would have an answer “by the end of August”.
But with just a month until then, more than 100 lawmakers have sent a letter to Biden and Education Secretary Miguel Cardona, imploring them to extend the hiatus.
“Resuming student loan payments would force millions of borrowers to choose between paying their federal student loans or putting a roof over their heads, food on the table, or paying for child care and health care. health,” the lawmakers wrote.
“For the first time, many borrowers have had the opportunity to pay down debt, open a savings account, buy a home and save for retirement – none of this would have been possible without payment break.”
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When student loan repayments are expected to resume
After mortgages, student loans make up the largest portion of household debt at more than $1.5 trillion, according to the Brookings Institution.
At the start of the pandemic, the government froze student loan repayments for most borrowers. The pause, which has now been extended six times, allowed consumers to use that money elsewhere.
As lawmakers pointed out, many used the break to save to buy homes, pay credit cards or catch up on other bills.
In April, the White House extended the moratorium until August 31.
“This pause will help 41 million people meet their monthly bills and meet their basic needs,” Vice President Kamala Harris said in a statement. “This will give borrowers the time they urgently need to prepare for a return to repayment.”
A path to forgiveness
Mark Kantrowitz, a student loan expert who has written five books on grants and financial aid, says there are three potential paths to forgiveness: regulation, legislation, or executive power.
If the president were to use executive action to write off student debt, he would face legal challenges that Kantrowitz said would not follow Biden’s path. And Congress has yet to pass legislation for broad loan forgiveness, nor does it appear to be about to.
Regulation could be the president’s best bet, says Kantrowitz, whose books include How to appeal for more financial assistance.
The federal government offers four income-based repayment plans, which set loan payments at amounts meant to be affordable for borrowers based on their income and family size.
Most people forget that these are also loan forgiveness plans, Kantrowitz says. After making qualifying payments for 20 or 25 years, depending on the plan, borrowers can see their remaining debt eliminated. Those working in the civil service can get a discount after just 10 years of payments.
One of the four plans — the income-contingent repayment plan — gives the U.S. Department of Education broad regulatory authority so it could be turned into a means-tested loan forgiveness program, Kantrowitz says. .
Means testing, a method of determining eligibility for government assistance, is one way to address the concern to help people who may not need it.
Biden “doesn’t believe that — that millionaires and billionaires, obviously, should benefit or even the highest income people,” former White House press secretary Jen Psaki said after Biden’s remarks in the spring. . “So that’s definitely something he would look into.”
Will he or won’t he?
One of the likely reasons Biden has not followed through on his campaign proposal is the economic and geopolitical fallout from the pandemic and the war in Ukraine, says Siri Terjesen, professor of management and associate dean at the Florida Atlantic. University.
“With year-over-year inflation approaching 10%, policymakers who remember the basic economy will want to rein in further stimulus to bring inflation under control,” he said. she said in an email. “A massive student loan forgiveness program would push inflation up even faster.”
Since the start of 2020, Biden has forgiven billions of dollars in student debt through other programs. These include plans for borrowers who have been misled by their schools, people with disabilities and others who work in government.
The push for more continues.
The majority of Americans support canceling student debt, Massachusetts Sen. Elizabeth Warren said during a Senate committee hearing this spring.
“There’s hardly a working person in America who doesn’t have a friend, family member or co-worker who is weighed down by student loan debt,” said Warren, who supports the 50-year pardon. $000 per borrower.
Canceling that amount would cost $904 billion and write off all balances of about 30 million — or 79% — of borrowers, according to a report by economists at the Federal Reserve Bank of New York.
A $10,000 forgiveness per borrower would cost $321 billion and eliminate the entire balance for 11.8 million borrowers, or about 31%.
Adding an income cap to forgiveness proposals “significantly lowers the cost of student loan forgiveness and increases the share of benefits going to borrowers who are more likely to struggle to repay their debts,” the report says. report.
Potential Problems With Large Student Debt Forgiveness
Proponents of broad forgiveness argue that student loans contribute to racial and socioeconomic wealth gaps. But there are better ways to narrow racial wealth gaps, says Adam Looney, senior fellow at the Brookings Institution.
Looney posits that student loan forgiveness is regressive and that only targeted debt relief policies can help address the inequities caused by federal student loan programs.
“Appropriately measured, student debt is concentrated among very wealthy households, and loan forgiveness is regressive whether measured by income, education, or wealth,” he writes. “Widespread forgiveness is therefore an expensive and ineffective way to reduce economic gaps based on race or socioeconomic status.”
The next steps
Kantrowitz expects Biden to make another extension to the payment pause and interest waiver that will last until after the upcoming midterm elections.
While the White House has kept its cards close to its chest, Kantrowitz believes the loan forgiveness is likely to happen. “And if that happens, the amount and eligibility will likely be limited,” he says.
Biden has already ruled out canceling $50,000 in debt, but $10,000 in forgiveness is still on the table.
Meanwhile, the issue continues to shine a light on the rising costs of a college education.
Tuition and university fees were about 170% more expensive in 2021 than in 2001, Tejersen cites in a new book on cutting red tape in higher education.
“The silver lining in the student debt fiasco,” she says, “is that more Americans recognize the need to identify affordable college options.”
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.