While most of the stimulus announced during the COVID-19 pandemic has been rolled back and the U.S. Federal Reserve has started raising rates, the moratorium on student loan repayments has been extended many times.
The most recent pause on student loan repayments was in December 2021 when President Biden announced that the moratorium would be extended until May 1, 2022. However, on April 6, 2022, just weeks before student loan repayments were set to resume, Biden once again issued an extension to August 31, 2022.
Why has there been a pause on student loan repayments?
There were widespread job losses in the initial days of the COVID-19 pandemic and almost every sector of the economy needed federal support. Student loans have been a stressed area for years. Many borrowers struggle to repay their loans even during normal times.
Former President Donald Trump announced a moratorium on student loan repayments and continued to extend it. Biden followed the same policy by keeping student loan repayments suspended through multiple extensions.
Speculation that Biden would extend the student loan repayment pause has swirled for months.
Speculation has been rife that Biden would extend the pause on student loan repayments again. Ronald Klain, the White House Chief of Staff, said earlier in March that another pause on the student loan moratorium was on the table.
Senator Patty Murray, who's the Chair of the Senate Committee on Education, Health, Labor, and Pensions, has been quite vocal that the moratorium on student loan repayments should be extended even further to no earlier than 2023.
What were the key considerations for Biden in deciding to extend the pause loan repayments?
Biden cited recent research from the Federal Reserve suggesting a significant number of borrowers would become delinquent or default on their loans if repayments were to resume in May, thereby "[threatening] Americans’ financial stability.” Klain said in a recent Pod Save America interview that the administration is looking to make decisions on loan forgiveness — including who would be eligible and for how much — before payments resume.
When deciding on the pause on student loans, Biden is likely also considering the electoral prospects in the midterm elections. The majority of voters support some form of student loan forgiveness, and the number in support is even higher among those most likely to vote for him. However, there's a lot more at stake. There are arguments both for and against extending the student loan moratorium.
Why do some people oppose the extension of the moratorium?
Many oppose the extension of the student loan moratorium. They argue that the economy has recovered from the COVID-19 pandemic and loan repayments should resume. The long extension on student loan repayments could spoil the credit culture in the U.S. Also, with student loan refinancing rates set to increase for variable rate borrowers, many might miss out on refinancing their loans.
The U.S. job market has been pretty strong and if anything, there's a severe shortage of employees amid the great resignation. Fed Chair Jerome Powell is also concerned about the tight job market, which he feels he getting “unhealthy.”
Simply put, with there being no dearth of jobs and the economy still looking strong, there isn't much economic rationale for extending the pause on student loan repayments.
A structural solution is needed for the student loan problem.
There's a structural problem since many student loan borrowers have been struggling with loan repayments. The continued extension on student loan repayments isn't a solution, and if anything, it will only amplify the problem. What's needed is a structural solution to address the problem, which arguably isn't easy.