Other View: Extending student-loan repayment pause a mistake
From the editorial: "The moratorium subsidizes high earners and the well-educated at the expense of lower-income, non-college-going Americans."
By extending the moratorium on federal student-loan payments through the end of August, the Biden administration has cheered borrowers and those advocating for across-the-board debt cancellation.
Taxpayers, though, have little such reason to celebrate.
For the past two years, more than 40 million borrowers have been allowed to forgo making their monthly payments. The vast majority made no payments at all during the pandemic, even though the government set interest rates at zero. This has already cost about $120 billion in lost revenue; the latest extension will cost at least $17 billion more.
Put in place by Congress in March 2020, the moratorium was meant to be a short-term response to high unemployment caused by coronavirus shutdowns. Today, the jobless rate among college graduates, who hold 85% of all outstanding student-loan debt, is 2%. While the pause applies to all borrowers, it disproportionately benefits high earners and those with graduate degrees, who took out loans at higher interest rates and were largely making regular payments before the reprieve.
In effect, the moratorium subsidizes high earners and the well-educated at the expense of lower-income, non-college-going Americans — who will also bear the brunt of any inflationary impact from extending the pause. Allowing borrowers to keep money they would otherwise have used to pay down their debts could add to consumer demand and push prices up further. In trying to ease the "economic consequences" of the pandemic on these borrowers, the Biden administration risks raising the costs for everyone else.
Education Secretary Miguel Cardona said that the added time will help borrowers plan for the resumption of payments at the end of August. It's just as likely, however, that the administration will face pressure to continue the freeze through the midterm elections — or beyond. Activists are already using Biden's willingness to extend the moratorium to make the case for wiping out student debt altogether.
The administration needs to push back. Biden should make a definitive commitment to restart repayments when the current reprieve ends. In the meantime, the administration should redouble efforts to simplify the existing patchwork of student-loan programs and enroll all borrowers in a single income-driven repayment plan in which they pay what they can afford.
Giving Americans a break from student-loan payments might have been justified at a time of economic emergency. Extending the moratorium more than two years later is a mistake the country can't afford to repeat.
— Bloomberg Opinion Editorial Board