The House of Representatives passed a bill on Wednesday to block President Biden’s student loan forgiveness program and end the pause on federal student loan payments and interest. But they went further than just blocking forgiveness, the bill includes backdated interest on all paused payments. The Republican-sponsored bill, which was introduced by Rep. Bob Good of Virginia, passed by a vote of 218-203 with Democratic Reps. Jared Golden of Maine and Marie Gluesenkamp Pérez of Washington joining the Republican majority in favor of the resolution.
The bill aims to overturn Biden’s plan to forgive up to $20,000 in student debt per borrower earning less than $125,000 a year, which was announced last fall as part of his economic recovery agenda. The plan also promised to double the forgiveness amount for Pell Grant recipients, who are typically low-income students.
The plan has been repeatedly stalled by court challenges and state challenges and is currently on the docket for the supreme court to adjudicate, which is expected to rule on it at the end of June.
For years the question of a “student loan bubble” like the housing crisis bubble in 2007/08 has loomed over the heads of economists. Student loans have long enjoyed a protection not afforded to other kinds of debt where even bankruptcy or default will not discharge it. The reason behind this has always been to ensure that ample money is available for student borrowers because lenders know it will be protected.
But if many students simultaneously stop being able to afford to repay student loans, it will also mean they cannot pay rent, mortgages, credit card debt, and any number of other kidneys of debt upon which the US economy rests.
Retroactive interest payments make absolutely no economic sense and there are no economists who are claiming that it is a good thing economically. The point seems to be to fire up the base and “punish” the left and especially the students who would suffer if this were to pass.
The Secretary of Education Miguel Cardona has already stated that the pause on federal student loan payments and interest will end “no later than June 30, 2023”, no matter how this bill and the Supreme Court decision go. The plan will almost certainly be the more graduated repayment plan which will be based on income and not lead to ballooning payments.
But the problem that existed when they announced that plan still exists; how many borrowers have engaged with the system. An income driven relief plan can only help if the Dept. of Ed knows your income. They can’t match tax records, they need people to tell them the amount they make every year to judge what the payment amount should be. Theoretically if someone is pretty broke and just keeping their head above water without time to think about applying for forgiveness online, their expected repayment will be 100%.
And we know from years of research and observation that on average the people who engage with a system like this will be those who need it less. They will be more white and more wealthy than the average debtor.
The justification for this is around the national debt and the brinksmanship game that republicans play with the artificial debt ceiling.
Truth be told, even if this terrible bill passes the senate, the White House has vowed to veto it, and there is far from a veto proof majority to get it passed. But either way it can be used as a chip to claim that Biden doesn’t care about the national debt since this time around democrats have been a little less willing to engage in horse trading to raise the debt ceiling.
It still seems unlikely that student loan forgiveness will be something we see this year, but it is also unlikely that there will be backdated interest expected. It doesn’t change the fact that republicans seem determined to act out of malice more than anything else these days.
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