Student Loan Forbearance—Forever?

Biden gives borrowers more time not to repay. Debt cancellation may be next

WSJ editorial.

"The pandemic has become an excuse for progressives to impose policies they otherwise couldn’t—from new entitlements to a ban on rental evictions. The latest act of executive hubris came late Friday when President Biden extended student loan forbearance through January.

Congress in March 2020 relieved borrowers from making payments on federal student loans and waived interest accumulation through last September. Like other “temporary” pandemic programs, the student loan reprieve has been repeatedly extended, first by President Trump and then Mr. Biden, even as the labor market has strengthened.

Forbearance was supposed to expire at the end of September, but Education Secretary Miguel Cardona says a four-month extension is necessary to give borrowers “the time they need to plan for a restart.” Pardon? They have the next two months to plan. Most don’t need that. The unemployment rate among bachelor’s degree recipients was 3.1% in July.

Borrowers haven’t had to show they’ve been hurt by the pandemic to receive forbearance, and nearly 90% of the 43 million student borrowers as of March 2021 (the latest Education Department data) weren’t making payments. Forbearance is saving borrowers on average $400 per month, which many are using to invest or pay down higher-interest debt.

As a student loan adviser told the Journal last month: “I’m seeing them say, ‘I’m going to take out more loans now and go buy GameStop stock with it because it’s going to get forgiven anyway,’ which always gives me anxiety.” You can see how they might get that idea as the same politicians who promoted more student debt now claim the government has a moral obligation to cancel it.

As a candidate Mr. Biden endorsed $10,000 in cancellation per borrower, but in January he said he doubted he had the legal authority to forgive debt without an act of Congress. But he said he same thing about extending the rental eviction moratorium. Then his Administration did it anyway to placate progressives.

Now they’re demanding Mr. Biden cancel more debt. Cancellation is “one of the most significant actions that President Biden can take right now to build a more just economy and address racial inequity,” Sen. Elizabeth Warren said Friday in a statement with Majority leader Chuck Schumer and Massachusetts Rep. Ayanna Pressley. New York Rep. Jamaal Bowman tweeted: “Sounds like January 31, 2022 is the deadline to cancel student debt.”

The President seemed to be teeing up a broader cancellation in his Friday statement: “We know there is more work to do and the road will still be long for many people—especially for the one in six adults and one in three young people who have federal student loans.”

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Colleges and the government have saddled some borrowers with debt they can’t repay. Yet borrowers can enroll in repayment plans that cap payments at 10% of their income and forgive their remaining balance after 20 years (10 if they work in “public service”). Ms. Warren wants Mr. Biden to cancel $50,000 per borrower, which would mainly help higher earners with graduate degrees. Progressives want debt relief for the affluent.

Student loan forbearance has already cost taxpayers $80 billion, and the new extension will add $20 billion. A Brookings Institution study estimates that cancelling $10,000 in debt per borrower would cost $373 billion and $50,000 a cool $1 trillion. Republicans are looking like even bigger chumps for scrounging to “pay for” their infrastructure deal as Democrats demand Mr. Biden spend money Congress hasn’t appropriated.

Mr. Biden in the spring asked the Education Department to conduct a legal analysis of his authority to cancel debt. Then last month he appointed Toby Merrill as the deputy general counsel. Ms. Merrill wrote a memo to Ms. Warren this year arguing that the President has the authority under the Higher Education Act to cancel student debt without approval from Congress.

Friday’s extension looks like it’s intended to give the Administration more time to prepare its legal justification for sweeping loan forgiveness. If Democrats in Congress think cancelling debt is a political winner, why don’t they want to vote on it?"