In the spring of 2020, many politicians and economists were in agreement: the American public needed help shouldering the financial burden of COVID-19. The unemployment rate tripled from the fourth quarter of 2019 to the second quarter of 2020, sitting at a staggering thirteen percent. In response, there was near-unanimous bipartisan support for efforts to bring relief to U.S. citizens. Amongst a host of other fiscal actions was the deferment of federal student loan debt.
When introduced by President Donald Trump in March of 2020, the pause on student loan repayments for federal borrowers provided relief that allowed millions of Americans to continue to house and feed their families. But now, after its sixth extension that has spanned twenty-four months, it’s doing more harm than any presumed good. The argument for extending the forbearance is weak and contradictory.
President Biden said before announcing the extension that the economy was stronger than ever and able to shoulder the return to “normal routines.” Biden simultaneously cited research from the Federal Reserve that said once payments resume, delinquencies, and default among direct borrowers will experience a “meaningful rise.” Reinstating the payments could “threaten American’s financial stability,” the president said.
Since the unprecedented act of lowering interest rates to zero on direct federal student loans and automatically placing those loans into administrative forbearance, nearly thirty-seven million borrowers have not been required to make payments on their student loans over the past twenty-four months. According to the Committee for a Responsible Federal Budget, the loan pause has cost our government $100 billion, and the extension will add at least another $15 billion to that amount.
There is one group that is benefiting from the president’s decision to extend the student loan pause by an additional four months: high earners with graduate degrees. According to the CRFB, graduate degree holders with high amounts of debt have saved tens of thousands of dollars in interest thanks to higher-than-expected inflation, which erodes the value of current debts. A recent master’s degree graduate has received an average of $13,500 in debt relief, roughly three times as much as the average newly graduated bachelor’s degree recipient. And a new lawyer has received about $30,000 of debt cancellation during the pause. In effect, the student loan pause aimed at providing relief for low-income borrowers has instead created a windfall for folks who can generally afford to make their loan payments, at the expense of the American taxpayer.
It is important to consider the political ramifications of the student loan forbearance for the administration vis-à-vis election prospects. If President Biden had not extended the forbearance, repayment would have begun in May, in the middle of a midterm election season. Numerous polls show that student loan relief is a popular proposition amongst voters. There is undoubtedly pressure on the president to take meaningful action, as student loan forgiveness was a linchpin of his campaign.
The past five extensions on student loan forbearance were related to a new variant of COVID-19 or dire economic restraints. But this one is different—no major new variants are causing a spike in cases or closing businesses. Robert Kelchen, a professor at the University of Tennessee, told Fortune, “The pandemic is now in a much better state, so the extension is either due to concerns about the economic situation of borrowers or for primarily political reasons during an election year.” Unemployment rates for adults aged twenty-five and older who hold a bachelor’s degree or higher are at two percent as of March 2022, and nearly two-thirds of U.S. private-sector payroll workers saw wage increases of at least five percent from the second quarter of 2020 to the second quarter of 2021. In industries like information, management, and finance, those increases reached double digits. The data would indicate the vast majority of borrowers are no longer in a situation where restarting payments would create economic hardship.
