The US Education Department has announced that it will extend a moratorium on federal student loan payments through January 31, 2022. The decision, which doesn't affect private student loans, was hailed by many, but also received a fair share of criticism.
The Biden administration stayed true to its intention to be more lenient on student loan relief. We wrote in June that the Biden administration has already canceled over $2 billion in federal student debt, which may seem like a big deal (and in a way, it is) -- but is little more than a drop in the bucket when you consider that student loans in the US have reached a whopping $1.6 trillion in 2019, the equivalent of 7.5% of the country's GDP. Some 45 million Americans are currently still paying student debt. But Biden has not been idle since June. By January 31, 2022, student loan borrowers will have received more than $110 billion in student loan cancellation -- with federal student loan borrowers getting $5 billion a month in savings as debt relief.
The amount is still lower than what the likes of Sen. Elizabeth Warren (D-MA) and Senate Majority Leader Chuck Schumer (D-NY) were asking for, but in addition to the loan cancellation itself, there are also 22 months of no new interest or any federal student loan payments. So it's not exactly peanuts.
But this is the last straw, the White House said. No matter what happens to the future of the pandemic or the economy, this federal student loan relief has an end date: 31st of January, 2022. After that, students, you'll be paying or refinancing student loans and that's the end of it.
Reactions have been mixed. While Warren or Schumer think this isn't enough, those more on the conservative side argue it's way, way too much. The editorial board of the Wall Street Journal called it "executive hubris", claiming that students don't need cancellation and nearly 90% of the 43 million student borrowers as of March 2021 weren’t making payments.
The WSJ also added that on average, this is saving students $400 a month, hinting that more cancellation is coming and that many students will use the money to "buy GameStop stocks". But White House officials argue that for millions in need, this is a vital lifeline.
“The payment pause has been a lifeline that allowed millions of Americans to focus on their families, health and finances instead of student loans during the national emergency,” Education Secretary Miguel A. Cardona said in a statement. “As our nation’s economy continues to recover from a deep hole, this final extension will give students and borrowers the time they need” [to resume payments].
Whether or not cancellation will have a positive effect on the US economy and on its people remains to be seen, but for the time being, student loans (both federal and private) are likely to remain an important part of the US economy.