Rising inflation adds pain to student loan debt
Student borrowers will face serious pressure this spring when a federal moratorium on their debt repayments expires amid soaring inflation.
Tens of millions of Americans are preparing to start repaying their student loans for the first time since March 2020, after the fastest annual rise in consumer prices since 1982.
Costs for food, housing and other essentials are rising as millions of Americans feel the crushing weight of student debt.
“People’s budgets are already squeezed by rising food and heating costs. Suddenly hitting people with a student loan payment averaging $400 a month would be a double whammy,” said Debt Collective organizer Thomas Gokey.
Consumer prices rose 7% in December from the same month a year earlier, marking the fastest annual price rise in nearly 40 years. High inflation is a huge political challenge for President BidenJoe BidenHouse Democratic campaign arm overtakes GOP counterpart in final quarter of 2021 Putin’s ‘Brezhnev Doctrine’ involving Ukraine could backfire on Ukraine and Democrats preparing for the midterm elections, and advocates have warned that the lack of action to write off student loan debt will also follow them down the trail.
During his 2020 presidential run, Biden campaigned to forgive at least $10,000 in federal student loans per person. But Progressives have called on Biden to forgive up to $50,000 of federally held student debt per borrower.
Rising inflation has fueled more calls for Biden to eliminate student debt through executive action.
“With inflation people are already struggling and then having another payment of $500, $700, $1,000 a month, I think is going to be incredibly problematic. Especially when it comes to thinking about what the administration needs to do to build grassroots enthusiasm in 2022 and 2024, especially among young people. I think its failure to deliver on its promises for this key demographic is going to be incredibly problematic,” said Joseph Geevarghese, executive director of Our Revolution.
As the White House faces widespread calls for student debt cancellation, Biden has pushed Congress to pass legislation paving the way for massive cancellation. But, with his party’s tight control in the Senate, Democrats are looking to Biden to use his executive authority to write off the debt.
Top Democrats, including Senate Majority Leader Charles SchumerChuck SchumerJoe Biden’s Disastrous 48 Hours Biden’s Desperate Speech to Keep Minority Voters Business Leaders Urge Senate to Bypass Filibuster to Pass Suffrage MORE (DN.Y.), argue that Biden has the power to forgive student loan debt himself.
Last spring, White House officials called on the Department of Education to produce a memo on Biden’s legal authority in the matter. The White House and the agency did not release further information on the status of the memo when pressed by The Hill.
About 43 million Americans owe a collective amount of about $1.6 trillion in student loans to the federal government.
In Biden’s first year in office, nearly $12 billion in student loans were forgiven for more than half a million borrowers, but only in some cases. This includes borrowers with total and permanent disabilities, those who attended now defunct schools, or government workers.
Biden also extended the temporary pause on federal student loans and interest accrual through early May, waiving the previously set Jan. 31 date to lift the student loan forbearance.
Some experts have played down concerns about the financial burden the majority of borrowers will face when federal student loan repayments resume in May.
In an interview, Mark Kantrowitz, vice president of research at Saving For College, highlighted employment trends as the economy recovers.
“The people most affected by the economic disruption of the pandemic are not people with college degrees. Unemployment rates among people with college degrees are much lower than the rest of the population,” Kantrowitz said.
The unemployment rate for adults 25 and older with a four-year college degree was 2.1% in December, according to the Labor Department, but 4.6% of job seekers with only a high school diploma were unemployed.
Sandy Baum, nonresident senior fellow for the Urban Institute’s Center on Education Data and Policy, argued that borrowers with a bachelor’s degree are “significantly more likely to have worked remotely and not missed a beat and lost no income”.
But Baum told The Hill that while many borrowers have ‘income capable of repaying their loans’, there are others who do not, while pointing the finger at students attending outdated schools and those who are permanently disabled.
She and Kantrowitz also recognized the need for officials to address racial disparities in student loan numbers.
“Black student debt is a huge problem because black students disproportionately come from families, not only with lower incomes, but with lower wealth,” Baum said.
Discrimination in the job market is also a major factor, she continued, pointing out that black bachelor’s degree holders continue to earn less than their white counterparts despite possessing the same skills and qualifications.
The Department of Education pointed to Biden extending the temporary pause in federal student payments as “much needed relief” to borrowers when asked about the impact of high inflation on borrowers.
The ministry is committed to helping borrowers when payments resume.
“As payments resume, the Department will work to ensure that no borrower is forced into making a payment they cannot afford by helping borrowers enroll in repayment plans. income-oriented or take advantage of other options to deal with their financial difficulties,” a spokesperson said. .
While cash-strapped borrowers or those with certain government careers may be able to enroll in forgiveness or repayment programs, those who do not will face another barrier to price increase.
A White House official, asked about rising inflation and its impact on borrowers, pointed to Biden’s plan to cut prices by cracking down on meat processors and leading the biggest release of reserves of oil in history.
“The president knows the kind of pressure that can put on working families, which is why he’s using every tool at his disposal to drive down those prices,” the official told The Hill.
Even so, these efforts could take months or even years to bring prices down and only in certain sectors of the economy. Economists say Biden has little direct ability to untangle the tangle of supply chain issues, hiring challenges and pandemic hurdles that are driving up inflation.
The Federal Reserve is also set to start raising interest rates to calm inflation as early as March. But even lower inflation would still leave borrowers cash-strapped in the face of high prices.
Natalia Abrams, president and founder of the Student Debt Crisis Center, argued that acting to forgive student loans is how the president can help Americans get through high inflation.
“One of the best ways to bring prices down for families and for borrowers is to cancel student debt and beyond that, to continue the pause until we are really out of this pandemic,” said she declared.