By extending the moratorium on federal student loan repayments through the end of August, the Biden administration has encouraged borrowers and those advocating for blanket debt cancellation. Taxpayers have little cause for celebration.
For two years, more than 40 million borrowers have been authorized to waive their monthly payments. The vast majority have made no payments during the pandemic, even though the government has set interest rates at zero. It has already cost about $120 billion in lost revenue; the latest expansion 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 the high unemployment caused by the coronavirus shutdowns. Today, the unemployment 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 graduate degree holders, who take out loans at higher interest rates and were largely on regular payments before the stay.
In effect, the moratorium subsidizes high-income and well-educated people at the expense of low-income, non-college Americans — who will also bear the brunt of any inflationary impact from the extended pause. Allowing borrowers to keep money they would otherwise have used to pay off debt could increase consumer demand and drive prices up further. By trying to mitigate the “economic consequences” of the pandemic on these borrowers, the Biden administration risks increasing the costs for everyone else.
Education Secretary Miguel Cardona said the extra time will help borrowers plan to resume payments at the end of August. It’s just as likely, however, that the administration will come under pressure to maintain the freeze until the midterm elections — or beyond. Activists are already using Biden’s willingness to extend the moratorium to argue for eliminating student debt altogether.
The administration must react. Biden is expected to make a final commitment to resume repayments when the current reprieve ends. In the meantime, the administration should redouble its 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 paying student loans might have been justified in times of economic emergency. Extending the moratorium more than two years later is a mistake the country cannot afford to repeat.
—Bloomberg Opinion Editorial Board