The White House has extended the moratorium on federal student loan debt collection once again. Payments were initially expected to resume on May 1 but have been kicked back to August 31. Despite this last-minute reprieve, some advocates continue to be disappointed that the Biden administration hasn’t made a move on total debt forgiveness. With the congressional elections fast approaching, however, the chance of a politically motivated decision to either extend once again or “forgive” a portion of the debt remains firmly on the table.
Avoiding Further Financial Instability
The moratorium, initially instituted by President Trump in 2020 during the COVID-19 pandemic, has been extended multiple times. It allowed millions of Americans of all different socioeconomic stripes to postpone payments on their federal student loans at a 0% interest rate. The decision to extend the suspension was made to “assist borrowers in achieving greater financial security and support the Department of Education’s efforts to continue improving student loan programs,” President Biden said in his announcement.
According to the Federal Reserve, if the administration were to allow the suspension to expire on May 1, “millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability.”
Democratic lawmakers, led by Senator Patty Murray (D-WA), pushed Biden to extend the moratorium through the end of the year to get past the midterm elections. Undoubtedly, how the Democrats handle the transition back to repayment and whether Biden enacts a form of debt relief will affect the midterms. It seems likely there will be a bold cry for another extension or cancelation in August before voters hit the booths in November.
SoFi – a finance company that receives much of its business from student loan refinancing – has been forced to change its end-of-year financial guidance as its stock dropped a sheer 10% at the news. The organization suspects a further extension will be granted. “Management now expects that a number of factors including the impending fall midterm elections will precipitate a likely seventh extension beyond August 2022 by the Administration. Accordingly, Management’s updated 2022 guidance assumes that the student loan moratorium will not in fact end during the course of 2022,” SoFi said.
More than 43 million people owe a combined $1.6 trillion in federal student debt. Advocates say that number really isn’t so big, relatively speaking, and forgiving it wouldn’t be overly detrimental to the government’s more than $30 trillion national debt. Opponents aggressively disagree.
Lawmakers have offered a few options, such as erasing for each borrower anywhere from $10,000 to 100% of the debt. President Biden shared at a CNN town hall that he would not cancel $50,000 per borrower, a proposal the progressive Democrats are vying for. As previously reported by Liberty Nation, the president has suggested he is prepared to dismiss $10,000 per borrower but noted that he thought a solution through Congress would be preferable. Senate Majority Leader Chuck Schumer (D-NY), Sen. Elizabeth Warren (D-MA), and other notable DC figures argue the president can erase $50,000 per borrower with a stroke of his pen. Nonetheless, the administration hasn’t made a move.
Experts close to the White House claim an executive action hasn’t been executed for timing reasons, not legal or ideological ones. Presumably, the student loan forgiveness ammunition is being kept dry until it can provide the most electoral impact. Perhaps we’ll see the Biden administration pull the trigger after this extension runs out in the fall.