- Student loan payments have been on hold for nearly two years and were recently extended to May 1.
- There is controversy over the benefits of broad relief, and some argue that it is bad for the economy.
- However, experts told insiders that it gave borrowers more financial flexibility and enabled them to find better jobs.
LoadingSomething is being loaded.
It has been almost two years since millions of borrowers like Gwen Carney faced monthly student loan bills.
Carney, a 61-year-old single grandmother with $ 75,000 in student debt, told Insider that the break in federal student loan payments earned her an additional $ 200 a month in seed money to do a face mask sewing side gig to start. Their sales helped her afford groceries and utility payments.
During that time, Carney was just one of the borrowers able to pay off other forms of debt, afford basic necessities, and contribute to the economy. Her story shows the extra juice that procrastinating – or, as some would argue, deleting – of student debt can bring to people’s lives and the economy at large. The argument goes: Less debt means more economic freedom for the people and more vitality for the country.
The economy was “more than fine” during the payment hiatus, Marshall Steinbaum, a senior fellow at the Jain Family Institute and an economics professor at the University of Utah, told Insider. Workers have gained the financial flexibility to quit their jobs and take other opportunities, which is “a real change in the way the economy works for anyone who is truly alive now”.
Steinbaum said those who oppose widespread relief and newfound worker power “want to return to a world where workers are fortunate enough to have even one job and basically take whatever is given to them by their bosses including repaying their student loans. ”
The break has already been extended 3 times
Former President Donald Trump suspended the payment of student loans with interest waiver for the first time in March 2020.
Since President Joe Biden took office, the break has been extended three times, most recently due to Omicron until May 1. Some proponents have argued that if the break can be further extended, there is no reason why the student debt cannot be completely canceled. Plus, the extra $ 5 billion a month in Americans’ pockets could be a huge boon to the economy, according to the Department of Education.
Following the recent renewal, NAACP President Derrick Johnson wrote in a statement, “If you can afford to keep putting the student loan payments off, you can afford to cancel them.” Progressive lawmakers like the Massachusetts Senator, Elizabeth Warren and Senate Majority Leader Chuck Schumer, who proposed $ 50,000 debt relief per borrower, have said the same thing.
Suspending payments has given borrowers more economic freedom
In addition to the student loan payment hiatus, millions of Americans have participated in the great resignation by quitting their jobs to find better opportunities.
Charlie Eaton, an economic sociologist and researcher at UC Merced and co-author of a Roosevelt Institute study analyzing the effects of student debt cancellation, told Insider that “one of the great things about today’s economy” is resignation – and that Resumption of student loan payments would prevent this.
Eaton’s study concluded that removing $ 50,000 in student debt per borrower would give households in the lowest income groups more than $ 4,000 – money that could stimulate the economy if it weren’t for monthly payments is used.
“When people try to get back into work but they can’t get a home or car loan or buy a car, it becomes more difficult for people to find jobs they’re willing to take,” Eaton said, referring to the Home Ownership Declines Among Those With Student Debt The National Association of Realtors recently found that more than 51% of borrowers are delaying home buying because of their debt.
“There is no doubt” that the government can afford broad discharge
There is no consensus on the cost of comprehensive student loan relief. The Federal Responsible Budget Committee wrote in an August report that the student loan moratorium should end and said it had cost the government $ 52 billion annually. It has also been reported that a widespread rejection is a weak economic stimulus. It would put $ 90 billion a year back into the economy, but it would cost the U.S. government $ 1.5 trillion in uncollected loan repayments.
However, a 2018 Levy Economics Institute of Bard College paper co-authored by Steinbaum found that widespread debt relief could increase real gross domestic product by an average of $ 86 billion to $ 108 billion a year, leading to a lower one Unemployment would lead to around 1.2 million additional jobs annually.
“If we cancel the student debt, it really means that the federal government is choosing not to collect payments from debtors for the debt already spent,” Steinbaum said. “Can the federal government afford this cut in revenue of, say, US $ 100 billion per year or a similar figure for an indefinite period of time? I think the answer to that question is undoubtedly yes. ”
Others disagree. Larry Summers, former Treasury Secretary to President Bill Clinton and chief economist under President Barack Obama, wrote on Twitter in December that the additional extension of the payment break was “very problematic” – a view shared by more right-wing economists and experts.
He said “there is now no specific case for general relief,” citing the low unemployment rate – the rate fell from 4.6% in November to 4.2% – adding that the relief is what regressive means that wealthier borrowers will benefit more from it.
Left-wing economists reject this argument, saying that broad relief would benefit the low-wage most. The Roosevelt Institute names 61% of students with incomes up to $ 30,000 in debt, compared with 30% of students with incomes above $ 200,000. But just to be clear, we don’t have the most specific data on the impact of the student loan relief – as it hasn’t been done yet.
Regardless of the real economic impact of broad relief, the payment hiatus has removed significant burdens on borrowers. One previously told Insider that the lack of monthly payments on her student loan saved her $ 377 a month, which allowed her to pay all medical bills for the birth of a baby.
“This is basically a ball and chain of sorts around many people’s ankles that was raised at the start of the pandemic,” said Steinbaum, an economics professor at the University of Utah. “And I suspect it has been very positive for their financial well-being and purchasing power.”
Borrowers like Gwen Carney can attest – the payment hiatus gave them the relief they desperately needed. They just wish it wasn’t temporary.
Do you have a story about student debt? How did the payment break affect you? Contact Ayelet Sheffey at [email protected]