Biden Administration grants student loan borrowers a 5th extension on payments
For the fifth time since the start of the COVID-19 pandemic, the Biden Administration on Wednesday extended loan forgiveness on payments by student borrowers through the end of August.
The decision comes at a time when Americans are facing substantial increases in the cost of everyday expenses, from housing to food to gas, which have been exacerbated by two global crises: the pandemic and the war in Ukraine.
“We are still recovering from the pandemic and the unprecedented economic disruption it caused,” President Joe Biden said in a statement. “If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggests that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability.”
More than 40 million student loan borrowers, on the hook for around $1.8 trillion, braced for months for potential loan payments to renew, especially the seven million who are in default. The decision to pause those payments prevents a potential catastrophic deluge of collections from occurring. But it is one that many leaders, from education through Congress, say must be remedied soon.
“When I talk to student loan borrowers in Washington state, one thing is painfully clear: the student loan system is broken. It is ruining lives and holding people back,” said U.S. Senator Patty Murray. “Borrowers are struggling with rising costs, struggling to get their feet back under them after public health and economic crises, and struggling with a broken student loan system—and all this is felt especially hard by borrowers of color. It should be easy to enroll in a sensible repayment plan, no one should end up with a monthly payment they can’t afford, and debt relief shouldn’t require making it through a gauntlet of paperwork.”
Murray said she wants to see further action beyond the pause taken by the federal government, including immediate relief for those who have mountains of debt they cannot repay, including a cap on payments above 10% of a borrower’s income as well as helping those willing to pay but are in default and have poor credit histories get a new start. Other Senators like Elizabeth Warren are calling for more, including a potential clean slate for some borrowers who owe as much as $50,000. Biden has not been willing to go that far, proposing $10,000 be wiped out.
“Student loan debt is a racial and economic justice issue that stains the Soul of America,” said Wisdom Cole, national director of youth and college for the NCAAP. “With each and every repayment extension, you make a stronger case for canceling it. At this point, just cancel it. $50,000 is the bare minium, $10,000 is not enough.”
But not every politician is sold on the idea of a massive student loan debt bailout.
“President Biden’s perpetual student loan payment moratorium is an insult to every American who responsibly paid debts,” said Sen. Tom Cotton (R-Ark.). “There’s no free lunch: this reckless move puts taxpayers on the hook for billions.”
The deluge of debt
According to a March report from Consumer Affairs, nearly two-thirds of 1,200 borrowers surveyed have not made payments over the course of two years, although around half said they did. Many of those who had not paid cited reduced income, a lack of money, lost employment or a reduction in work hours as the reason for not repaying. Around one-third said they were “hoping for future forgiveness.” Approximately 60% said they were not confident they could continue payments, with nearly 70% saying they would likely miss a future payment.
Many of those felt the government would come in and bail them out again. And it has.
Biden also addressed another pressing topic related to loan debt that has further implications on students pursuing postsecondary education-offering up a huge boost to Pell grant funding in his Fiscal Year 2023 budget. That would include an increase of $1,775 by 2023-24 and as much as $13,000 overall—Double the Pell—for borrowers by 2029. However, it still needs to be approved by Congress, which has budged only slightly in its spending on the program despite the President’s pleas.
“We applaud the Biden-Harris administration for giving borrowers who were struggling even before the pandemic the chance to course correct and get back on track with their loan payments,” said Karen McCarthy, Vice President of Public Policy and Federal Relations for the National Association of Student Financial Aid Administrators (NASFAA). “However, these borrowers remain at high risk of falling back into delinquency and default, and the Office of Federal Student Aid must plan future efforts to keep them on track. Of course, communication leading up to the resumption of payments in September will be key for all borrowers. We urge the Department of Education to develop and roll out a smooth, efficient on-ramp to repayment.”