Since the early days of the pandemic, the U.S. government has allowed federal student-loan borrowers to suspend making payments and waived interest on their loans. Amid the current omicron wave, President Joe Biden has once again extended the pause — the fifth such delay in less than two years. He should make it the last.
Following passage of the CARES Act in March 2020, the moratorium was supposed to last for six months. Donald Trump’s administration extended the pause twice, in both cases just weeks before it was set to end. Biden has continued to renew the policy, most recently in December. Borrowers will now be required to resume making payments this May — though progressives are pressuring the White House to extend the pause again or cancel student-loan debt altogether.
Biden should resist. Pausing student-loan payments made sense at the height of the pandemic, when much of the economy was shut down and the unemployment rate skyrocketed to 14.8%. There’s no justification for keeping the policy in place now. Roughly 85% of all outstanding student-loan debt is held by households headed by someone with a bachelor’s degree or higher. The joblessness rate among Americans with that level of education has fallen to near pre-pandemic levels. And while earnings for high-school-educated workers remain stagnant, median wages for recent college graduates have climbed to a 30-year high.
Like other forms of student-loan debt relief, the moratorium on repayment has disproportionately benefited high earners, while costing the government as much as $150 billion in lost revenue. Extending the pause again would compound these problems. It would incentivize current students to take out bigger loans, since under some repayment plans, the months covered by the moratorium still count toward eventual debt forgiveness. It might also worsen inflation, by subsidizing borrowers who would otherwise be paying down their loan balances.
The White House remains noncommittal about another pause, acknowledging only that it will have to make a decision before the May deadline. Rather than wait, Biden should rule out further extensions now. Doing so may disappoint advocates of debt cancellation, but it would promote fairness, cut the government’s losses and reduce uncertainty for borrowers themselves. The Department of Education could use the next few months to identify borrowers at high risk of defaulting and enroll them in more affordable plans. People already enrolled in income-driven repayment plans would also have time to update employment and family information, ensuring their monthly loan statements remain current.
In the meantime, the administration should focus on making common-sense reforms to simplify the student-loan system so that borrowers pay what they can afford. It should work with Congress to pass legislation to automatically enroll new borrowers in a single, streamlined income-driven repayment program, which would reduce needless confusion and lower default rates. Under this sort of system, the government could also collect monthly payments through tax withholding, as Australia does, eliminating the need for borrowers to manually provide their income data each year. People who are currently in default should be allowed to switch to an income-driven plan and have penalties waived if they demonstrate a willingness to meet their monthly obligations.
This system was dysfunctional long before the pandemic. Sensible reform can help alleviate the burden on the 43 million Americans with federal student-loan debt — but it’s time for the moratorium on repayment to end.
Editorials are written by the Bloomberg Opinion editorial board.
More stories like this are available on bloomberg.com/opinion
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