A “student-loan disaster” is “imminent,” says an economist who studies higher education. “After the pandemic-induced student-loan payment pause ended last year, the Education Department implemented a one-year transition period to allow borrowers time to ease back into the habit of paying their loans. That so-called on-ramp is set to expire at the end of September—yet tens of millions of borrowers have not yet made a payment,” notes Preston Cooper, an economist at the Foundation for Research on Equal Opportunity.
There are already 7.3 million borrowers who are delinquent, as of March. “Millions more are in default or not paying anything due to the latest Biden student loan bailout, currently being challenged in the courts. Through various programs, 20 million total borrowers are not paying on their loans,” notes the College Fix.
As Cooper explains:
Facing a potential nonpayment crisis in October, the Biden administration could opt to kick the can down the road by extending the on-ramp period. This may be the most likely outcome, as it makes the nonpayment crisis the next administration’s problem. But extending the on-ramp is not sustainable in the long run, as it means tens of millions of borrowers will continue to skip their payments—leaving taxpayers to pick up the cost.
Of course, many decisionmakers in the Biden administration are ideologically opposed to collecting the loans at all, so they may be fine with that. In the meantime, they will keep trying to forgive the loans outright. Though the administration’s highest-profile forgiveness plans are on thin legal ice, there are other ways to discharge debts. The Education Department has canceled $170 billion so far by bending the rules on other loan-forgiveness programs.
To get default rates under control, Cooper proposes making colleges “cosign the loans they foist on students.” That would encourage schools not to enroll borrowers into impractical academic programs that don’t lead to decent jobs or teach useful skills. “More than 20 million student borrowers are not paying their loans, and the nation is about to discover what that means,” he says.
Cooper previously wrote about what majors provide the best return for students.
The Education Department suspended student loan repayments for years. The Biden administration renewed the suspension again and again even after the economy had recovered from the pandemic. Interest on loan balances during that period was forgiven, costly taxpayers around $8.5 billion per month.
Adam Kissel, a former Deputy Assistant Secretary of Education, says this was likely illegal, because the pandemic no longer directly interfered with students’ ability to repay their loans, as it briefly did in 2020. Indeed, the most recent suspension was in response to court rulings declaring illegal President Biden’s attempt to write off around $500 billion in student loans, which was not a valid reason for suspending repayment.
Suspending student loan repayments encourages colleges to raise tuition, by making it more attractive to take out big loans to cover college tuition. When students are willing to borrow more to go to college, colleges respond by increasing tuition and hiring more unnecessary college bureaucrats. The Daily Caller notes that “each additional dollar in government financial aid translated to a tuition hike of about 65 cents,” according to the Federal Reserve Bank of New York.
Biden’s suspension of student loan repayments bothered not just conservatives, but even liberal economists. Former Harvard president Larry Summers, who was Treasury Secretary in the Clinton administration, called suspending student loan payments the “worst idea” because it transfers wealth to “highly paid surgeons, lawyers and investment bankers.”
Inflation and inequality got worse due to the suspension, says Matthew Yglesias, who co-founded the progressive website Vox. In the Washington Post, Yglesias noted that the long pause in student loan payments since 2020 disproportionately benefited the wealthy, at the expense of taxpayers who mostly don’t have college degrees. Yglesias also notes that Biden’s suspension of student loan repayments will drive up the inflation rate:
“Most Americans say the most important problem facing the country is inflation — and President Joe Biden just made it worse. His administration announced last week it would extend yet again the emergency suspension of student loan repayments, even as his frenemies on the left are urging a program of complete forgiveness of all student debt.”
Rapid inflation was already occurring due to massive government spending under Biden, he noted, and suspending student loan repayments made matters worse.
