TEMPORARY EMERGENCY measures often outlast the crises that prompt them. So it is with federal student-loan repayments, which were suspended in March 2020 as a pandemic-relief measure. In August 2021 the Department of Education announced a “final extension” of the moratorium on payments for the $1.6trn owed to the federal government, to last until January 2022. Then, one month before that deadline, the White House announced a final, final extension, to run to the end of May 2022. Then, on the cusp of that new cutoff date, a final, final, final date was announced on April 6th. This extends the moratorium to August 31st.
The repeated deferral of the issue looks increasingly odd. Most economic-relief programmes initiated in response to covid-19 have already been wound down: enhanced unemployment benefits, stimulus cheques and generous child benefits are all things of the past. A federal moratorium on evictions, on the grounds that these procedures might transmit the disease, was struck down by the Supreme Court in August 2021. In May the Biden administration will lift “Title 42”, a Trump-era immigration policy that limited asylum-seeking on public-health grounds. It has usefully allowed Mr Biden to keep America’s southern border mostly closed, at a time when the number of arriving migrants is the highest in a generation. Ending Title 42 is likely to spur an unpopular surge in attempted migration across it. If the unemployed, poor children, renters at risk of eviction and migrants are no longer receiving special pandemic support, then why are college-educated Americans?
The answer is one of bureaucratic capacity and Democratic Party politics. Unlike other measures, which require congressional approval or have been subjected to judicial review, the decision to delay student-loan repayments can be made by the executive branch alone. The education department has also been slow to set out the new payments regime after the moratorium, thereby justifying continued delays.
The stalling is also one of the few sops that the administration can throw to progressives in the party who are dejected at the failure of the president’s boldest proposals in Congress. Democratic senators such as Elizabeth Warren and Chuck Schumer, the majority leader, have been pushing for a more sweeping policy that would cancel debt of up to $50,000 per student. They argue that the president has the authority to do so unilaterally because the Higher Education Act of 1965 grants the education secretary the right to waive and release loans. The president, who supports a more modest cancellation amount of $10,000, is sceptical of such reasoning.
But this policy of delays also presents a paradox. In the same statement announcing the latest extension, Mr Biden crowed about “the greatest year of job growth on record” and “the fastest economic growth in nearly 40 years”. But he also insisted that resumption of normal payments would plunge millions of borrowers into “significant economic hardship”.
The indecision is not without costs. Because of the length of the payments suspension and rising inflation, the effective average cancellation has amounted to $5,500 per student so far, according to calculations (based on the present-value cost of the delays) by the Committee for a Responsible Federal Budget (CRFB), a think-tank. Already, the policy has cost $100bn (forgiving $50,000 would cost almost $1trn).
This outdated covid-relief programme has another problem, too. It is not particularly progressive. College-educated Americans command a sizeable wage premium; even those who do not get degrees have higher earnings. Those who attend graduate school often take out large loans at higher interest rates than for undergraduate degrees. The CRFB estimates that the effective debt cancellation for students who went to medical or law school is between $29,500 and $48,500 (see chart). For those with two-year degrees and those who did not finish college—the most economically vulnerable—the effective benefit has been less than $3,500. “The problem with universal loan forgiveness is that you end up with a system where a lot of the money goes to successful, affluent, white students,” says Adam Looney, a professor at the University of Utah and former official at the Treasury Department. It is analogous to pausing all mortgage repayments to help a minority of struggling homeowners.
That is not to say that America’s university-financing system is functioning well. Government management of income-driven repayment plans, which are supposed to limit the burden on poorer borrowers, has been shambolic. An investigation by America’s National Public Radio found that out of 4.4m borrowers eligible for forgiveness after 20 or 25 years of payment, only 32 had actually received it. There are also significant disparities in financial outcomes based on race. “Black borrowers borrow more, they are more likely to borrow, and they struggle more with repayment than other borrowers do,” says Victoria Jackson of the Education Trust, a research and advocacy group. Twelve years after starting college, white men have paid off 44% of their student-loan debts, her research shows; black students owe 12% more than when they started.
Targeted approaches to remedying this exist already. Federal Pell grants, which pay for poor students’ attendance, have fallen far behind the increased cost of higher education. Granting relief based on debt-to-income ratios would be more progressive than less discriminating policies. That would require a more wholesale revision than another few months’ delay. But come August, with punishing mid-term elections just months away, Mr Biden may find yet more justification for pushing off hard choices.