Biden Expected to Postpone Student Loan Payments Again and Forgive Many

Since the onset of the COVID-19 pandemic, college graduates have received a break on student loan payments thanks to federal student loan forbearance. Student loans are set to resume on Aug. 31, 2022. However, after months of conversation regarding student loan forgiveness, Americans want to know what President Biden is doing, if anything, to postpone the payment start date or forgive some of the loans.

The pause on student loans has been in effect for almost two and a half years and has been extended multiple times. Initially, the moratorium was set to end on September 30, 2020. However, in August of that year, then president DonaldTrump extended the moratorium to the end of 2020. At the end of his term, Trump extended the deadline again by a month. Shortly after he took office, Biden further extended the pause on student loans multiple times.

As the U.S. pushed through the 2021 winter and the omicron variant of the COVID-19 pandemic, 2022 brought a barrel of unforeseen problems such as Russia's war with Ukraine, skyrocketing inflation including record gas prices, and a seemingly crumbling tech and crypto sector. As the Federal Reserve attempts to get a grip on inflation with interest rate hikes, Americans are feeling the pressure — especially those with student debt.

Given the high rates of inflation, restarting payments could be a financial nightmare for many people. According to the Student Debt Crisis Center, 93 percent of borrowers aren't ready or prepared to make payments again.

Biden is expected to announce a decision on student loans on Wednesday, August, 24. In all probability, the pause on student loans would continue for the rest of 2022. Even SoFi, whose student loan refinance business has taken a hit due to the extended pause, is not modeling a resumption of repayments in 2022 while providing its financial guidance.

While the extension of the moratorium on student loan repayments is now more or less a certainty considering the upcoming midterm elections, where Democrats need to contend with Biden's low approval rating, student loan forgiveness is also on the table.

Along with the expected announcement of an extended moratorium, Washington insiders say the President will announce a $10,000 federal student loan forgiveness for individuals making $125,000 per year or less.

President Biden has already canceled some student loans. The administration has also revamped the PSLF (Public Service Loan Forgiveness). On July 6, U.S. Secretary of Education Miguel Cardona said in a statement that the administration is working on “fixing” the “broken” student loan system.

In his election campaign, Biden talked of waiving $10,000 in student loans for borrowers. However, there is a massive fiscal cost of the forgiveness which could cost the federal government upwards of $200 billion. While many fellow Democrats are calling upon Biden to forgive the loans as promised during the campaign, the President might need to weigh the costs as well, which could be around 10 percent of the country's GDP, and would eventually be paid by the U.S. taxpayer.

Also, loan forgiveness seldom solves problems, and if anything economy, hampers the credit culture in the country. That said, it is no secret that the student loan problem needs a fix, but forgiveness might not be the fix that the U.S. economy can currently afford with the debt to GDP ratio now approaching 124 percent.