Punishment of Student Loan Payments Saved $195 Billion; Biden still plans to end it
- Pausing student loan payments saved 37 million borrowers $195 billion, the New York Fed found.
- The Fed said if payments resumed on May 1, many borrowers would become delinquent.
- Democrats are urging Biden to avoid a financial cliff and extend the hiatus a fourth time.
The student loan payment pause has accomplished what it set out to do during the pandemic: put money back in the pockets of Americans.
But all that could change in just over a month.
The New York Federal Reserve released a report on Tuesday highlighting how the pause in student loan repayments has impacted federal borrowers over the past two years. He estimated the payment freeze, with interest waived, would save 37 million borrowers $195 billion in direct lending through April.
But 10 million borrowers with private loans, or federal private family education loans, haven’t reaped the same benefits and continued to make payments during the pandemic, and their experiences are a harbinger. what federal borrowers could face when the payment freeze ends in May.
Since borrowers with private loans were not covered by the Department of Education’s automatic forbearance, the Fed said the “difficulties faced by these borrowers in managing their student loans and other debts” suggested that borrowers who voluntarily failed to make payments during the break were likely to fall behind.
“While borrowers will likely face a healthier economy in the future, direct loan holders have higher debt balances, lower credit scores, and were making less progress with repayments than borrowers. FFEL before the pandemic,” the report adds. “As such, we believe direct borrowers will likely experience a significant increase in delinquencies, both for student loans and other debt, once forbearance ends.”
Student loan payments have been suspended since 2020, initially by then-President Donald Trump, to give federal borrowers a reprieve amid the pandemic. President Joe Biden has since extended that relief three times, and payments are expected to resume on May 1 unless additional relief is implemented.
The Fed report, along with other analysis, used data to sound a warning if borrowers are put back in repayment: Sticking millions of borrowers with another monthly bill in May will do more harm than good.
Student Loan Borrowers May Have Saved Money, But Still Worry About Repaying Debts
Over the past year, Insider has spoken with more than a dozen borrowers who have benefited from the pause on student loan repayments. Some borrowers have been able to pay off other forms of debt, such as large medical bills, while others have been able to accumulate savings, but all have expressed concerns about resuming payments on their student debt.
Gwen Carney, a 61-year-old woman with $75,000 in student debt, told Insider last year that she wasn’t sure she could pay an extra monthly bill.
“Restarting the payments is making me very anxious because I kind of have to find that extra $200,” Carney said. “I just don’t have it.”
She is not alone. A recent report from the Student Debt Crisis Center found that 92% of fully employed borrowers were worried about restarting payments amid rising inflation. This follows a November report which found that 89% of fully employed borrowers expressed the same concerns. That’s because much of their income would have to be reallocated – 27% of respondents said at least a third of their income would be redirected to paying off student debt, money needed elsewhere.
And administratively, the Ministry of Education has acknowledged the challenges of restarting payments. He told the Government Accountability Office earlier this year that it would be “a challenge to motivate” borrowers after a hiatus of more than two years, citing difficulties with communication efforts.
Despite pressure from lawmakers, Biden remains silent on broad student loan relief
White House Chief of Staff Ron Klain suggested a few weeks ago that borrowers would get some form of student debt relief ahead of a scheduled May 1 payment resumption date. But it’s still unclear what that relief will look like or when it will be implemented, prompting lawmakers and advocates to step up pressure on the administration to provide clarity to borrowers.
Many Democratic lawmakers have called for an extension of the pause on student loan payments. Senator Patty Murray, chair of the Senate Education Committee, recently called on the president to extend the pause on payments until 2023 until the loan system is ‘permanently’ fixed, referring to rebate programs and broken loan repayments.
“It’s not too much to ask – so until we fix our student loan system, the pause in student loan payments must continue to provide borrowers with much-needed relief,” she said. declared.
And 43 Democratic lawmakers, led by Rep. Conor Lamb, urged Biden to extend the payment pause “at least through the end of this year,” adding that borrowers and the Department of Education “are not ready. to resume payments in May”.
The Biden administration has yet to respond to those requests, as well as the issue of the general student loan forgiveness. While the president has forgiven about $16 billion in student debt for targeted groups of borrowers, like those defrauded by for-profit schools, his campaign promise to give borrowers $10,000 in relief remains unfulfilled. . Supporters say now is the time to deliver on that promise.
“The president during the campaign spoke about his commitment to canceling the debt,” John King, President Barack Obama’s education secretary, previously told Insider. “And so now is the time to follow through on that campaign promise.”
Do you have a story to share on student debt? Contact Ayelet Sheffey at [email protected]