In one of his first actions as president, Joe Biden on Wednesday extended the freeze on student loan repayment until the end of September, in the hope of avoiding further pressure on borrowers in the context of the economic crisis caused by the pandemic.
Biden signed an executive order shortly after his inauguration, pushing back the moratorium until September 30.
University graduates nationwide carry $ 1.6 trillion in student loans, the largest amount of consumer debt held by Americans except mortgages. The average debt is $ 33,000.
Without the extension, around 22 million borrowers faced a reprise payments on federal loans in February. When COVID-19 hit last year, then-President Donald Trump and Congress suspended all loan repayments, stopped collecting borrowers in default, and decreed that interest would stop accruing. The freeze was continuously extended but was due to expire at the end of this month.
Biden campaigned on a platform to levy $ 10,000 on the debt of every federal loan borrower.
In another major change, he proposed overhauling the underutilized program that grants loan forgiveness to people in public service jobs, like teaching or nursing. His proposal would provide $ 10,000 in student loan forgiveness per year for five years to borrowers in qualifying positions.
This would replace the current program which theoretically wiped out all debt after 10 years, but only helped a relative handful of debtors due to bureaucratic hurdles.
His proposals could face opposition from both left and right. Democrat Elizabeth Warren of Massachusetts and Chuck Schumer of New York have called for a reduction of $ 50,000 in student debt per borrower – five times Biden’s figure. And Republicans have said Biden’s program is already way too expensive.
Biden would also restore the ability of borrowers to get off their loans by filing for bankruptcy. President George W. Bush and Congress explicitly banned it in 2005.
The bankruptcy discharge is among the cheapest of Biden’s proposals, according to Mark Kantrowitz, a college financial expert.
Congress is expected to repeal the section of the United States Bankruptcy Code that provides the “discharge exception” for federal and private student loans. The cost of discharging bankruptcy is $ 30 billion over 10 years, he estimated.
Thomas Gokey, an organizer of the Debt Collective, who has been pushing for “debt strikes” among college graduates, said Biden should write off all debts.
“We have always been told that the sky would fall if people stopped paying their student loans. Now we know that is not true. Joe Biden should use this moratorium to write off all federal student debt using the authority that Congress had already granted him to do it, ”Gokey said.
Biden, however, said he found it “quite questionable” that presidents have the power to write off debt without Congressional consent. “I probably wouldn’t do that,” he said, referring to such unilateral action.