No, forgiving student debt won’t help Americans cope with coronavirus
A stimulus bill to ease economic upheaval due to the coronavirus pandemic failed in the Senate on Sunday after Democrats blocked it. The Democrats’ objections were numerous, but among them was the perception that the bill does not do enough for student loan borrowers. The alternative bill that House of Commons Speaker Nancy Pelosi unveiled on Monday would have taxpayers cancel $ 10,000 in loans for each borrower, a proposal also approved by Senate Minority Leader Chuck Schumer and possibly presidential candidate Joe Biden.
Failure of the Senate Republican-favored stimulus bill would suspend student loan payments for six months, and interest would not accrue during that time. Democrats agree with this policy, but also demand a loan forgiveness of at least $ 10,000 per borrower. As a political response to the coronavirus pandemic, a moratorium on payments makes sense. The outright cancellation of the loan does not.
The problem that the pandemic poses for some student loan borrowers is an immediate cash flow shortage. Workers facing reduced hours or even layoffs need to relieve the financial pressure now. Paying off student loans for six months is one way to do it.
But taking $ 10,000 from everyone’s balance will not improve a borrower’s immediate financial situation. This is because borrowers do not realize the financial benefits of loan cancellation until the end of the loan life. Forgiving $ 10,000 now means that a borrower could pay off their loans in full two years sooner than they would otherwise. It doesn’t help at this point if he has another seven years to go before the loan is paid off.
The 35% of federal borrowers who have less than $ 10,000 left on their student loans would see financial benefits sooner, since the forgiveness plan would pay off their loans in full. But Republicans and Democrats agree that payments should be suspended for the duration of the coronavirus crisis. With the forgiveness provision, people with debt of less than $ 10,000 would not have to start making monthly payments again once the pandemic is over. But even that still does nothing to alleviate the immediate cash crunch that many Americans face.
This is why a temporary payment break alone makes the most sense. This alleviates the temporary hardships that many borrowers face, but requires borrowers to resume their payments once things return to normal. It is true that some borrowers may face “ripple effects” after the pandemic ends, but not the economic downturn. But there are already programs in place to help them, like repayment plans that tie monthly payments to income.
The student loan system is not a great channel for relieving coronaviruses in the first place. Student borrowers tend to skew the richest than the average American, while the hardest hit by the pandemic will be lower paid hourly workers who may not have student loans at all. By my estimate, writing off $ 10,000 in debt for each student loan borrower will cost $ 370 billion, enough to give every American a check for $ 1,100. There is no good argument for spending this money on student loan relief instead of direct cash payments to those most affected by the pandemic.
Democrats might think canceling the student loan is a good idea for reasons unrelated to the coronavirus. It’s not, but that’s irrelevant. Politicians shouldn’t load the coronavirus relief package with policies that fail to address virus issues. As authorities report thousands of new coronavirus cases every day, time is running out. In the midst of a pandemic, Congress cannot waste time with political wishlists.