A sign reading “Cancel Student Debt” in front of the United States Supreme Court in Washington, DC Sarah Silbiger for the Washington Post via Getty Images
- Education Minister Miguel Cardona has confirmed that student loan payments will resume this year.
- The resumption risks jeopardizing the post-pandemic economic recovery and straining consumers’ wallets.
- The impact could worsen if the Supreme Court overturns Biden’s sweeping student debt forgiveness.
Student loan payments will resume this year. It will likely hurt not just borrowers but the US economy as a whole.
In March 2020, former President Donald Trump introduced the first student loan pause to provide financial relief to borrowers during the pandemic. Trump and President Joe Biden have since extended it several times — Biden most recently extended the relief to 60 days after June 30 in November, or 60 days after the Supreme Court made a final decision on the legality of the president’s plan, up to 20,000 Canceling US dollars falls into student debt for federal borrowers, whichever comes first.
And the latest expansion will most likely be the last as well. Education Minister Miguel Cardona told lawmakers in early May that “we will resume payments for 60 days after that, but no later than June 30. We will start this process.”
“We are confident, Senator, that the Supreme Court will rule in favor of the targeted debt relief that is providing relief to millions of borrowers, and we want to make sure the information borrowers receive is accurate. We plan to ensure that.” “It’s a smooth re-entry into repayment,” said Cardona, adding, “The emergency period is over and we are preparing our borrowers to restart.”
Biden also agreed to enshrine the end of the student loan pause in the debt ceiling agreement he reached with House Speaker Kevin McCarthy, implying that the president will not provide additional relief for borrowers in connection with COVID-19 deemed necessary this year.
However, some economists think the government – and the country – should brace for economic strain once payments resume. Marshall Steinbaum, a senior fellow at the Jain Family Institute and an economics professor at the University of Utah, told Insider, “It’s pretty clear that the payments pause has been very stimulating for the macroeconomy.”
“I think it’s clear that the fact that people have more purchasing power means they can spend more, and that’s good for aggregate demand,” Steinbaum said. But he added that when the government starts collecting student loans that borrowers can’t repay, “it’s just a more cumbersome way of managing a loan portfolio by trying to collect debts that basically can’t be collected.” , and trying to squeeze them out.” Pushing borrowers as far as possible to make that debt recoverable. And that is very bad for the macro economy.”
“We are facing a pretty sharp fiscal contraction”
Steinbaum previously told Insider that without student loan payments from borrowers, the economy was “more than fine.” The Department of Education previously estimated that the break will put about an extra $5 billion back in borrowers’ pockets, giving them more economic freedom not only to buy a car, house or other big expenses, but also to quit their jobs to seek better ones to seize opportunities.
These positive economic impacts could quickly reverse once payments resume. “We’re facing a pretty severe budget cut,” Steinbaum said.
And Mark Zandi, chief economist at Moody’s Analytics, told CNBC on Tuesday that resuming student loan payments after a more than three-year hiatus would slow economic growth and weigh on consumers’ wallets.
“I don’t think there will be a recession, and I don’t think student loan payments will be what’s going to push us into the crisis. But they’re a weight, it’s about 20 million student borrowers.” “If someone doesn’t pay, they have to start paying around September,” Zandi said.
“So if you do a little math, next year we will save a few tenths of a percent of GDP. Well, in a more typical time, that’s not really a big deal,” Zandi added. “The economy can digest that without any problems. But in the current environment, with the economy so weak and recession risks so high, a few tenths of a percent may matter. I don’t think that will be the case.” Push us in, but it’s certainly a strain at a rather awkward time.
The economy has made strides toward recovery since the pandemic began, with employment returning to pre-recession levels much faster than after the 2008 financial crisis. The resumption of student loan payments could jeopardize this recovery.
Representative Ayanna Pressley speaks as borrowers and student loan advocates gather during the Supreme Court student debt relief hearings for the People’s Rally to Cancel Student Debt February 28, 2023 in Washington, DC. Jemal Countess/Getty Images for student debt relief rally The Supreme Court decision will be a major factor in the economic impact
The Supreme Court heard hearings in the two Conservative-backed cases that paused implementation of Biden’s sweeping student debt relief in February, and millions of borrowers have since awaited a final decision on the legality of the debt relief — expected by late June.
Democratic lawmakers are sounding the alarm about the damaging effects of resuming payments without Biden’s sweeping debt relief. Massachusetts Rep. Ayanna Pressley previously told Insider that she would “absolutely” push for an extension of the payments pause if the Supreme Court overturned the credit waiver, saying the pause “has been game-changing and transformative for so many people.” . By getting rid of this bill.” I mean, do you all understand that there are people who pay monthly student loan bills that are the equivalent of a mortgage?”
And MP Ro Khanna wrote on Twitter on Tuesday that “without relief, resuming student loan payments would be devastating for 45 million borrowers.” It is wrong to let students down.”
Still, many Republican lawmakers continue to urge borrowers to resume payments before the Supreme Court makes its final decision. Last week, the House of Representatives passed a bill repealing Biden’s debt cancellation and immediately ending the payments pause, and the Senate voted to pass the measure on Thursday. But regardless of when exactly payments resume this year, borrowers and the economy are likely to suffer.
“The pause in payments is causing people to take out mortgages, take out auto loans, and all the things that you would expect if you were expecting macroeconomic stimulus from a pause in repayments,” Steinbaum said. “That’s why I’m very afraid of the end of the repayment break, especially if there’s no termination.”
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