But for Joe Biden, it might be good politics. For the last two years, federal student-loan borrowers have been excused, without penalty, from repaying their debts. In the meantime, taxpayers, who financed those debts, were left holding the bag while many high-earning borrowers rode the gravy train. Repayment was initially put on pause by the CARES Act at the beginning of the Covid-19 pandemic, before we fully understood what the pandemic’s economic impact would be. But with the economic fallout from Covid largely behind us, this moratorium on student-loan repayment should now be coming to an end.
Unfortunately, it seems that the Biden administration may have other plans.
Loan repayment was first halted by legislation, but the moratorium has subsequently been extended through a series of executive orders, one issued by President Trump and three issued by President Biden. The current extension is set to expire on May 1, but White House chief of staff Ron Klain recently indicated that Biden may instead declare another one.
The initial rationale for the pause was somewhat sound. With uncertainty over the direction of the pandemic, policy-makers were eager to prop up the domestic economy by any means necessary. The government acted immediately on many fronts to stave off both systemic crisis and individual suffering.
Today, those concerns have long since dissipated. College-educated workers largely maintained employment during the Covid-prompted downturn, and the economy bounced back, fueled by massive government intervention and widespread vaccination. But despite the return to normalcy, President Biden has not yet allowed the moratorium to expire.
Because the pause on repayment stops interest from accumulating on loans, each day it is extended is a boon to high-balance borrowers, most of whom also have high annual earnings. More than half of the outstanding student debt in the economy is held by households with at least one member who has a graduate degree or professional degree, and that thus enjoy the higher earning power associated with those degrees. In addition to the benefit of interest-free deferred payments, many of these borrowers will end up being delivered a shortcut to a big payout from the existing loan-forgiveness programs, due to an unintended consequence of the moratorium’s design.
As for more-troubled, lower-earning borrowers, we needn’t worry that ending the repayment pause would leave them behind. Since long before the pause even began, the federal student-loan system has offered repayment plans that excuse lower-income borrowers from having to make unaffordable payments on their debt and ultimately forgives balances that prove burdensome in the long run. These programs are notoriously difficult to navigate, which is why the Trump administration did not rely on them to ease the economic shock at the onset of the pandemic, but the two-year pause on payments should have provided more than enough time for troubled borrowers to get through all the red tape and sign up for them.
In short, the pause on student-loan repayment has already outlived its usefulness. So why is Biden contemplating another extension?
The answer lies in political considerations, of course. During the 2020 campaign, the Democratic Party promised voters that it would cancel their student-loan debts. But it has so far failed to deliver. Democratic lawmakers, it turns out, aren’t all in favor of widespread loan cancellation, which makes a legislative route to that end impossible, at least for now. So if it is to happen at all, it will have to happen through legally questionable executive action — and Biden is reluctant to take such action.
While he did promise $10,000 in student-loan cancellation per debtor during his presidential campaign (the most modest proposal to emerge from the Democratic primary), Biden’s words and actions since taking office have suggested that he understands how regressive a widespread loan-cancellation policy would be and doesn’t really want to adopt one. When asked if he’d cancel student debt in a town hall last year, he answered with a sharp “no.” He pointed out, perhaps more candidly than he intended, that doing so would benefit graduates from elite institutions such as “Harvard and Yale and Penn” at the expense of people in more “disadvantaged circumstances.”
Biden played ball on student-loan cancellation during the 2020 primaries to avoid falling completely out of rhetorical step with the more progressive candidates in the field and alienating the party’s left wing. The promise, which he has never officially abandoned, was notably absent from his State of the Union address a few weeks ago. He likely doesn’t want to end the progressive dream of widespread student-loan cancellation. So he’s considering the next best thing: Another extension of the loan-repayment moratorium.
This may or may not prove to be good politics for Biden. But it is undoubtedly bad policy.
Beth Akers is a resident scholar at the American Enterprise Institute.