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“Historically significant” increase in unpaid bills and payment defaults
U.S. Department of Education Under Secretary James Kvaal said in a recent court filing that if the government is not allowed to provide debt relief, there could be “a historically significant increase in the amount of federal student loans in arrears and defaults as a result of the COVID-19 pandemic”.
Although student borrowers have been offered forbearances during previous natural disasters, Kvaal wrote, default rates still soared when payments resumed.
The pandemic-era relief policy suspending federal student loan payments has been in effect since March 2020, and payments aren’t expected to resume until after the dispute over the president’s plan is resolved or at the end of August. – whichever comes first.
″[T]The one-time student debt relief program was intended to stave off “skyrocketing default rates,” Kvaal added.
The borrowers most likely to default are those for whom Biden’s student loan forgiveness plan would have wiped out their balance entirely, Kvaal said.
The administration estimated that its policy would do so for about 18 million people.
“These student borrowers had a reasonable expectation and belief that they would not have to make additional payments on their federal student loans,” Kvaal said. “This belief may well prevent them from making payments even if the Department is prevented from providing debt relief.”
“Serious” political consequences
Astra Taylor
Source: Isabelle De Maddalena
Restarting federal student loan repayments without giving forgiveness would have “serious” political consequences for Democrats, said Astra Taylor, co-founder of debtors’ union Debt Collective.
“[Biden] will launch his re-election campaign in 2024 as an American debt collector,” she said.
If the ultra-conservative “U.S. Supreme Court” blocks the president’s plan, Taylor said, Biden must explore other legal avenues to provide relief to borrowers.
She pointed to the possibility for the president to use a different law to justify his plan, such as the Higher Education Act 1965which states that the Department of Education may “enforce, pay, compromise, waive or discharge any right, title, claim, lien” relating to federal student loans.
Currently, the Biden administration uses the Heroes Act 2003 pretend he has the power to cancel student debt.
This law allows the Department of Education to make changes to federal student loan programs in the event of a national emergency. Critics accuse the administration of using the coronavirus pandemic to deliver on a campaign promise and say the aid is not for those who have suffered financially due to Covid.
Another avenue the president could take would be to try to extend the pandemic-era pause on federal student loan payments indefinitely, said higher education expert Mark Kantrowitz.
That decision, Kantrowitz said, is “more likely to survive a legal challenge.”
“A disastrous blow for black Americans”
The nation’s $1.7 trillion student loan crisis has hit black Americans particularly hard.
Black student borrowers owe an average of $7,400 more upon graduation than their white peers, a Brookings Institution report found.
This inequity only gets worse over time: Black students owe an average of more than $52,000 four years after graduation, compared to about $28,000 for the average white graduate.
If Biden’s student loan forgiveness fails, it would be a “disastrous blow to black Americans,” said Wisdom Cole, national director of the NAACP’s youth and college division.
“The racial wealth gap will widen and the vicious cycle of economic inequality will continue,” Cole said. “If our leaders truly believe that black lives matter, they must understand that failure is not an option.”