The tentative deal reached in Washington will have a major impact on federal student loan borrowers.
If the agreement reached between the Biden Administration and the top Republican members of Congress is passed into law then payments on federal student loan bills that were suspended at the beginning of the pandemic would be resumed by the end of August. These bills will come due in the next month.
This means that 43 million borrowers, like Daniel Galvan (a 34-year old from Southern California), must tighten their household budgets in order to cope with rising food costs as well as other unexpected expenses.
Galvan, an administrator at a university who still owes around $10,500 in student loans, says that payments stopped during the past three years but his financial obligations have only grown.
He said on Tuesday that the pause had been helpful. “My wife could and I would buy a home in 2020. I saved the money that would have been used for a mortgage payment to pay for our first house and initial expenses. We have twins who are 1 year old, and they’re not cheap.
The CARES Act was signed by the then-President Donald Trump in March 2020. It allowed federal student loan borrowers to skip payments without penalty. The President Joe Biden extended a pause on the issue as concerns over inflation, and rising gas prices continue to sap consumers.
Borrowers also benefited from the suspension of interest on federal student loan. However, the moratorium did not apply for borrowers who had privately owned loans.
Natalia Abrams is the founder of the Student Debt Crisis Center in Los Angeles. She criticized the White House’s decision to allow student loan relief to be clawed-back, especially while the Biden Administration’s plan to forgive billions in student loans remains in limbo at the Supreme Court.
Abrams stated that “borrowers were sold out.” They feel like they’ve been thrown under a bus by these negotiations.
She said that her concern is that millions of people could be hit with bills they did not realize were due and cannot afford. She said that this would apply to borrowers who have graduated in 2020, but haven’t had to consider loan payments in the past three years.
Ro Khanna (D-Calif.), a member the House progressive group, said: “It seems like that could punish youth.” “It would be politically disastrous for me to force millions young people to pay back their student loans after Trump has forgiven them more or less,” said Khanna.
Republicans are against the continuation of the student loan pause. According to Kevin McCarthy, R.-Calif. House Speaker, it costs taxpayers $5 billion per month.
McCarthy, on Fox News Sunday, said that Biden went against the constitution when he said he would waive a certain amount of debt for students loans. But then he stopped everyone’s student loans.
Cody Hounanian is the executive director of Student Debt Crisis Center. He said that he was concerned that the Education Department wasn’t able to handle the “monumental” task of informing students that they have to pay back their student loans. He said that some student loan servicers have been charged with predatory lending, and have deceptive practices. They can’t be relied upon to act in the best interest of borrowers.
Hounanian stated that “the lives of 40,000,000 people will be disrupted while the costs are a drop of water for the federal governments.” On the other hand, it will be extremely harmful to many people’s lives.
After warning that student loans might eventually be due, Education Secretary Miguel Cardona said his agency was prepared to deal with any fallout. This spring, the Supreme Court had been weighing litigation related to student loan relief.
Cardona tweeted Sunday that he would “smoothly return to the repayment processes” and assured the public that the debt ceiling agreement “protects the ability of our students to pause their student loan payments in future emergencies.”
Biden’s plan to forgive federal student loans is estimated to be worth over $400 billion.
The administration proposes to discharge debts up to $10,000 from those who earn less than $125,000 per year, or couples filing taxes jointly that earn less than $250,000. Pell Grant recipients – the majority of students – would qualify for an extra $10,000 in debt relief.
The plan could erase all student debt for 20 million people.
Six Republican-led states – Arkansas, Iowa Kansas, Missouri Nebraska South Carolina – have filed lawsuits accusing the federal Government of exceeding its powers in seeking to forgive student loans.
Legal experts believe that the states might feel empowered by the 6-3 conservative majority of the Supreme Court. The conservative justices were skeptical about the plan of the administration during oral arguments in Feburary. This caused concern amongst student advocacy groups, and Democrats, that Biden’s desire to provide relief from student debt — which could haunt his reelection bid in 2024 – may be defeated.
The Supreme Court will likely make a decision before the end June.
