The latest pause in federal student loan payments is less than two weeks until it expires on August 31.
Cassie Smith doesn’t need to be told.
The chance of getting resume payments is “a raincloud that sits over my head every day,” says Smith, 33, a college lecturer who lives in Austin, Texas and has $52,000 in student loan debt.
Smith is an instructor at Texas State University for undergraduate students pursuing a social work degree. After a few years, she found work in a generally low-paying field of social work as she saw some former colleagues pursue more lucrative avenues such as real estate. Because she works for a public college, Smith believes she will eventually qualify for a program that will pay off the federal government debt after at least 10 years of salary. But in the meantime, she feels pressured by her monthly student loan bill — to the point of freezing, that is.
“Break means everything. It has changed and transformed a reality for me that I never thought possible,” Smith said. The hiatus during the pandemic, which began in March 2020 and has been extended by both the Trump and Biden administrations, exempted Smith from paying $268 a month. This has allowed her to take on credit card debt, pay off her old car, and pay a down payment on a condo—no small feat for a woman living in an expensive city.
Despite this, she has a part-time job as a zookeeper and is about to start anew as an elementary school administrator on the condition that student loan payments resume.
As Smith and 43 million other student-loan borrowers await a response from the Biden administration about the future, a debate rages on about the potential economic impact officials will have on the decision — whether to resume payments or pause. extend and/or offer a broad-based loan foreclosure. some economists argue These student loan easements could fuel inflation by giving borrowers cash to spend. Other experts believe that student loan assistance can prompt borrowers to save extra money and pay off other debts.
When asked for comment on Friday, the White House cited comments made by Press Secretary Karine Jean-Pierre earlier this month. During the August 9 briefing, Jean-Pierre said no decision had yet been made on whether to stop or cancel. The President knows that the financial “burden” of debt can add up. “He’ll have something before August 31,” Jean-Pierre said.
Mark Goldwyn, senior vice president of a responsible federal budget committee, fears that more relief for borrowers could exacerbate the current inflationary environment.
“Two things can be true,” he said. “Debt cancellation or loan breaks are financially good for the 13% of Americans who have student loans,” he said. “But for the 87% of Americans, it’s worse off financially if they don’t have student loans.”
According to the Federal Reserve Bank of New York, there were about 43.4 million student loan borrowers in the fourth quarter of last year. That’s 13% of America’s 332.4 million people, including children, according to the Census Bureau. The largest proportion of borrowers, just over a quarter, owe between $10,000 and $25,000, New York Fed data shows. As a sign of the impact of stagnation, more than half of student loan balances did not decline from 2019 to 2021, the researchers noted.
Americans owed $1.59 trillion in student loan debt in the second quarter of 2022, New York Fed loan numbers show.
Goldwyn said stagnation and cancellation could contribute to inflation in the short term by freeing up money for spending. He estimated that this could be much less than expected for the deficit reduction in the recently implemented health, climate and tax packages.
“We give people more money to spend than the economy produces. As people’s wealth increases, they spend some of their wealth,” he said.
Goldwyn said resuming automatic payments would not result in a drastic fall in inflation rates. In a sense, Biden can only do so much to fight inflation, Goldwyn said, in the event that the Federal Reserve, not the president, sets interest rate policy. But things that the Biden administration can now fight inflation for are a big deal, he says.
“You can control how much people are literally spending next month,” Goldwyn said.
Deputy director for education, jobs and labor at the Roosevelt Institute, a progressive think tank, Ali R. This, Bustamante said, is an unnecessary threat to many people’s economic security.
Instead of fueling spending sprees, stagnation gives borrowers a chance to “pay off all of their debt and save,” he said. “It really looks like they’re improving their wealth, and money is something you can’t spend today or tomorrow. Money is something you accumulate over time.”
Bustamante said there was another way to think about the fairness argument to a section of the population that would benefit. Bustamante said the cost of higher education has increased over the past two decades and that “the reasons the student loan crisis exists are political decisions” that “shift higher education funding from states to families.”
Additionally, student loan cancellations can be especially important for black families, Bustamante said. He found that given the wealth gap, black borrowers have a greater chance of taking out student loans and borrowing more money compared to white households.
If payments fall, New York Fed researchers say ‘many’ [borrowers] However, some could face arrears or defaults. – How many, depending on the rules to be followed, he said. If payments resumed, New York Fed researchers estimated that “lower-income, less educated, non-white, female and middle-aged borrowers will have more difficulty making the minimum and balance payments than they currently do.” “.
Indeed, borrowers are disproportionately spread across the economy and income ladder – adding to the complexity.
According to the Employee Benefits and Research Institute, people in the education and healthcare industries like Smith were the most likely to have student loans, accounting for about 25% of student loans. But fewer than 8% of workers in construction and mining and fewer than 4% in agriculture had student loan bills over their heads, researchers said when they dissected the 2020 census data.
Some industries can be harder to get paid than others. Nearly two in 10 workers in business and professional services were in debt, but their average income was more than $84,000, the researchers said. Meanwhile, people in education and healthcare, such as teachers and nurses, made about $64,500.
Goldwyn believes payments should have resumed by now. But with less than two weeks until the deadline and no clear response from the administration, he believes borrowers should receive a final, short extension with a clear message that payments will start shortly.
The early payment pause is “a very sensible measure when the economy is in recession,” he said. But the picture has changed, he said, citing jobs that continue to grow in the economy even as inflation picks up. “Right now there is no emergency that would require this hiatus to continue,” Goldwyn said.
At this point, borrowers lack a repayment deadline, said Cody Hounayan, executive director of the Student Loan Crisis Center, who is likely to be harassed with payments from a president who has made student loan debt service a part of his campaign.
In a survey conducted by the organization in February, 92% of full-time borrowers said they were concerned about making payments in the face of inflation.
Those results could likely be worse now, Hauannia said. “Paying off student loans at a time when millions of Americans are saying gas is too much and groceries are too expensive is a financial disaster,” he said.
Back in Texas, Smith was able to buy a new car for a portion of the clearance proceeds. For his last one, “I basically put him in,” Smith said.
But now there’s a new car payment and the unexpected expense of paying for four new tires—all of which add pressure, which can be dire on a CV payment. She says she gets frustrated when trying to pay off debt or build up savings.
Smith backs down on the idea of lending, pausing when it’s unreasonable. So social workers are underpaid, as is the pay gap between men and women, she said.
Getting out of debt, or at least avoiding it further, could ease the worries of families with so many cash constraints now, she said.
“Living with the debt that America has right now is exhausting.”