Extended student loan break. Next stop, cancellation?


The extension of the moratorium on evictions has benefited from outside play, with Representative Cori Bush (D-MO) leading a sit-in on the steps of the Capitol. The extension of the student loan payment hiatus, which was announced on Friday, had a lot more to do with an inside game, led by Rep. Ayanna Pressley (D-MA) and the Senses. Elizabeth Warren (D-MA) and Chuck. Schumer (D-NY). Press conferences, hearings, letters and lobbying by these three activists have stepped up their efforts to prevent the resumption of payments at the end of September.

This would have created a serious economic headwind. The pause in student loan payments was not discussed in the same breath as stimulus payments or extended unemployment assistance, but it has as much, if not more, to do with the positive state of the economy. and the personal savings rate. About 42 million federal borrowers have made no payments on their student loans in the past 17 months, and the Education Department’s announcement will hold them for five more. With an average payment of $ 393 per month, that will represent an effective profit of $ 363 billion by next January, a value close to that of the one-time checks sent to $ 171 million as part of the US bailout.

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The student loan break is for those who carry the loans, and by January they will have received an average savings of $ 8,646. This has allowed some borrowers to repay their loans in full: around 2.5 million, according to data from loan officers. It also gave borrowers time to determine what loan cancellation and modified repayment programs they had access to. Moreover, the booming demand for goods and services during the pandemic also has a lot to do with this pause, as student debtors have more money in their pockets.

This is why it would have been so difficult to reduce it in September. With nearly 6 million more Americans unemployed than there were before the coronavirus hit the United States in March 2020, taking tens of billions of dollars out of the economy each month would have put the brakes on the demand and hurt the kind of discretionary spending in restaurants and travel that took the longest time to emerge from the recession.

As many members of Congress welcomed the extended payment break and called on Biden to go further by moving to the cancellation, House Speaker Nancy Pelosi got into a corner on this issue.

The quietest reason the Biden administration decided to extend the payment hiatus is that two leading student loan managers who manage nearly 10 million accounts have left the company in the past two months. The hiatus will give the Department of Education more time to transfer these accounts, as well as to correct many other shortcomings in the student loan system, such as helping defrauded and disabled borrowers, as well as those who are building careers. in the civil service and who are eligible for a loan. forgiveness.

Like the moratorium on evictions, the administration reported that this last extension of the payment break would be the last. “This latest extension will give students and borrowers the time they need to plan for the restart and ensure a smooth return to repayment,” Education Secretary Miguel Cardona said in his announcement.

Some have claimed that extending the break only kicks the box off the road. There was, however, a material advantage. Since interest rates were reset during that time, borrowers already saved $ 72 billion in interest in July, with more to come.

Perhaps the biggest real benefit of the payment break, however, has been to prove the concept that the Department of Education has the power to change the terms of student loan payments at its discretion. While the ministry can suspend payments for 22 months using the powers given to it by the Higher Education Act, it can also write off student debt using the exact same powers.

The administration said the education ministry and the justice ministry are reviewing executive powers to write off student debt. They just need to review the order by extending the payment break. There is no difference between the two. The Debt Collective, a militant coalition, went so far as to draft the Executive Order, which specifically identifies the “compromise and settlement” powers in the US Code available to the executive to extinguish these debt obligations.

As many members of Congress welcomed the extended payment break and called on Biden to go one step further by moving to the cancellation, House Speaker Nancy Pelosi got into a corner on this issue. She approved the payment break, but on July 28, Pelosi stated unequivocally that Biden did not have the authority to write off student debt, arguing that “the president can only postpone, delay, but not forgive.”

Pelosi spokesman Drew Hammill said his response “was based on his staff’s analysis of the president’s authorities” and if the president found a different authority, she would back it. But it was speculated that Pelosi proposed this notion to his longtime confidants and financial backers Steven and Mary Swig, whose Freedom to Prosper organization argued for the same in a two-page brief to Congress.

The brief claims that the Education Department, by writing off student debt, would violate the Anti-Deficiency Act, which prohibits the executive from spending money that Congress has not appropriated. It is a strange leap to argue this, but it is also wrong, as Senator Warren explained in his own brief. Congress, through the Federal Credit Reporting Act, “has already appropriated the money for federal student loans … the cost is fully realized up front at the time of the loan,” Warren notes briefly. In addition, Congress delegates discretionary authority to administer the student loan program to the Secretary of Education.

But the most logical reason to assume that student debt cancellation is legal is that it uses the exact same authority that was used to suspend payments. The same part of the United States code that allows for the modification of the “time of payment of any deposit” also allows for “compromise, waive or release” any claims on payments. Claiming that one is legal and not the other is driving Pelosi into absurd dead ends. Does she believe the Department of Education could suspend payments for 100,000 years but not write off the debt?

Some have argued that canceling student debt would reward wealthy, cosmopolitan college graduates at the expense of poorer Americans. This perspective overlooks the true burden of student debt. For example, households with black college graduates have seen their net worth plummet since the 1990s, and that’s almost entirely due to rising student debt. More than 84 percent of black households with someone in their 30s with a college education have student debt, compared to 53 percent of similar white households. Student debt has exacerbated racial disparities in wealth. And when you extend to households whose debt has not been graduated, you bring in a large number of poorer households who would benefit from the cancellation. The cancellation of student debt would in fact be gradual, and not a boon to wealthy college graduates. And that would finally force policy makers to rethink the way we finance higher education in America.

We now have five months for the Biden administration to make a decision on the cancellation. They have the economic motivation, the political opportunity and the moral means to make it happen. The government is already using the power to cancel and has been doing so for almost two years. Tens of millions of debtors are waiting.

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