Student loan payment resumption could drag down economic recovery, Democrats say

BY Sydney LakeDecember 14, 2021, 6:34 PM
Senate Majority Leader Chuck Schumer (D-NY) speaks during a press conference about student debt outside the U.S. Capitol on February 4, 2021 in Washington, DC. Also pictured, L-R, Rep. Mondaire Jones (D-NY), Rep. Alma Adams (D-NC), Rep. Ilhan Omar (D-MN), Sen. Elizabeth Warren (D-MA) and Rep. Ayanna Pressley (D-MA). (Photo by Drew Angerer—Getty Images)

There are only 49 days left until the forbearance on student loan payments ends, but many top Democrats aren’t going down without a fight to extend the moratorium—except President Joe Biden is unlikely to agree to that, according to his press secretary Jen Psaki.

Democrats including Senate Majority Leader Chuck Schumer, Sen. Elizabeth Warren, and Rep. Ayanna Pressley are continuing to push for continued reprieve for student loan borrowers—and now they’re saying that the resumption of payments could be detrimental to our post-COVID economic recovery.

“The resumption of federal student loan payments … will strip more than $85 billion from approximately 18 million American families over the next year,” Schumer, Warren, and Pressley wrote in a Dec. 8 letter to Biden. “In order to prevent the student debt crisis from dragging down our economic recovery … we strongly urge you to extend the pause on student loan payments and interest and act to cancel student debt.”

Schumer, Warren, and Pressley cite an analysis done by The Roosevelt Institute, a liberal American think tank. The letter cites that the average borrower paid $393 per month toward their student loans. The Roosevelt Institute analysis calculates that approximately $85 billion will be stripped from more than 18 million student loan borrowers’ budgets if collections on loans resumes.

This is “money that could not be spent on their families’ other needs,” they write in the letter. “These payments hurt individual families and the economy as a whole and will have a significant negative effect if the administration ends the payment pause as scheduled.”

But is this evidence enough to push Biden to extend the freeze?

Biden has said there won’t be any more extensions

In early August when the freeze on federal student loan payments was pushed back for the fifth time, Biden, White House officials, and the Education Department said that it would be the final extension. The freeze first went into effect with the passage of the CARES Act in March 2020. 

Psaki on Monday confirmed that there won’t be any additional extensions on student loan forbearance, and that payments will resume on Feb. 1, 2022.

“We’re still assessing the impact of the Omicron variant, but a smooth transition back into repayment is a high priority for the administration,” she said during a press conference. “The Department of Education is already communicating with borrowers to help them to prepare for return to repayment on February 1.”

Will repayment really take a hit to the economy, as Democrats argue?

Schumer and other top Democrats argue that student loan debt places an unnecessary burden on borrowers. 

“For over 2.4 million New Yorkers, tens of millions of Americans, student loan payments are a huge burden upon them,” Schumer said during a Dec. 6 press conference. “And, unfortunately, the pause that says you don’t have to pay them during the pandemic goes away by the end of January.”

The letter also shows that student loan forbearance has “improved borrowers’ economic security, allowing them to invest in their families, save for emergencies, and pay down other debt.”

Laura Veldkamp, an economist and professor of finance at Columbia Business School argues that “this is a great time to resume payments.” CBS is ranked as having the No. 6 full-time MBA program in the U.S.

“The economy is overheating. Employers are begging for workers,” she tells Fortune.. “Anyone who wants a job should be able to find something. Unless we face another widespread shutdown, it is good for the economy to resume, good for students not to let their debt drag on, and will encourage lenders to continue to lend to new students at reasonable rates.”

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