Nearly 3 years ago, executive & then Congressional action paused payments on most federal student loans at start of the pandemic. What started as emergency response is now tethered to WH proposed loan forgiveness. What is cost? Who benefits?
Distributional impact of payment pause different from proposed forgiveness. Pause provides more than 65% of relief to families with incomes > $75,000, while WH claims nearly 90% of relief under proposed forgiveness would go to families with incomes < $75,000.
Using Survey of Consumer Finances, we estimate the top 40 percent of households receive nearly 60 percent of the benefit of pause while only accounting for 41 percent of families with federal student debt.
Cost of payment pause ~ $5 billion per month. Beyond direct costs, pause contributes to inflation as borrowers have more cash on hand, ~ 20 basis points p/y (CRFB). For IDR & PSLF, pause months included in count; not distributionally neutral.
The 9th extension (3rd “final”) came 11/22 in confusing form of an extension for 60 days after the court challenges to the loan forgiveness plan or June 30, whichever comes first. Not an announcement that makes for easy financial planning!
Unemployment now 2.1% for young college grads (3.6% for some college) --> hard to justify continuation of pause on grounds of overall labor market weakness. Still, significant minority (~12%) likely to struggle with repayment restart.
With SC Justices hearing case on forgiveness February 28, there is significant uncertainty surrounding potential debt forgiveness. Projecting overconfidence to borrowers about the likelihood of forgiveness seems ill-advised. Encouraging financial planning for restart is needed.
34 months of pause should have generated outreach so borrowers who may struggle with restart of payments access safety net of resources – IDR, Fresh Start, Borrower Protection, PSLF. Mandate for FSA to engage borrowers now complicated as FSA funding caught in politics.
New paper from Briones, Turner & Powell in @EducationNext shows regressive distributional effects of payment pause educationnext.org/student-loan-p…