US President Joe Biden recently announced that he had extended the pause on student loan payments until May 1, 2022. The debt collection, which was supposed to start on February 1, has been pushed back 3 months. The US government temporarily paused it when the COVID-19 pandemic began to rage across the country. Biden cited the coronavirus crisis as the reason for slightly extending this moratorium.
The move comes nearly 2 weeks after White House press secretary Jen Psaki said the administration was still planning to restart student debt repayments in February. The Biden administration continued to resist the calls from fellow Democrats about further extending the pause and giving additional relief to the borrowers.
Urge to Cancel Student Loan by Democratic Leaders
The student loan has been the fastest-growing debt category in the US for the last 10 years. As More Americans seek higher education, more schools increase their costs. According to reports, 31% of adults in the US are tangled up in loans for education. The federal total reportedly reached a record 1.6 trillion USD this year. Most of the citizens likely to hold student debt in the US today are women and Black Americans. These loans have created a substantial economic drag that led policymakers to consider relief on a broader scale. Senator Bernie Sanders has also called for the cancellation of all school-related debt after appreciating the extension by Joe Biden.
Incapacity to Pay Off Debt
Many studies have found that student loans result in problems like delays in owning a home, getting married, having kids, or studying post-graduate programs. According to Federal Reserve data, 1 in 5 borrowers are already behind on payments. The age of the majority of borrowers is around 30, but the student loan follows them late into life. Reportedly, more than 130 billion USD is being held by US citizens over the age of 60.
Before the pause in March 2020, student loan payments took 393 USD away from the borrowers’ budgets. It reduced their disposable income and savings for household expenses. Subsequently, the pause allowed borrowers to retain their income and spend it across the community, which helped the US economy from a prolonged recession during the pandemic. According to research by Roosevelt Institute, resuming debt collection will strip away 85.48 billion USD annually from the budget of more than 18 million borrowers.
Senator Elizabeth Warren also supported that Joe Biden must consider cancelling student loans.
Inclusive and Equitable Growth
It is a matter of understanding that the citizens must not be forced to choose between repaying student loans and eating food. Black and Latin residents would likely feel the most lopsided effect of resuming the debt collection. Besides being significantly low in wealth, coloured citizens usually borrow more than their white counterparts for education expenses. Resuming the loan repayments would increase the racial wealth gap and debt burden for non-whites who carry huge debt balances. Cancellation might not be a cure-all solution, but it can certainly help the US economy grow equitably and inclusively, especially during the recovery period.