WASHINGTON, DC - MARCH 13: U.S. Speaker of the House Rep. Nancy Pelosi (D-CA) speaks to members of ... [+]
A stimulus bill to alleviate economic upheaval from the coronavirus pandemic failed in the Senate on Sunday after Democrats blocked it. Democrats’ objections were many, but among them was the perception that the bill doesn’t do enough for student loan borrowers. The alternative bill House Speaker Nancy Pelosi unveiled on Monday would have taxpayers cancel $10,000 in loans for every borrower, a proposal also endorsed by Senate Minority Leader Chuck Schumer and likely presidential nominee Joe Biden.
The failed stimulus bill favored by Senate Republicans would pause student loan payments for six months, and interest would not accrue during this time. Democrats are on board with this policy, but demand at least $10,000 per borrower in loan forgiveness as well. As a policy response to the coronavirus pandemic, a moratorium on payments makes sense. Outright loan forgiveness does not.
The problem the pandemic presents to some student loan borrowers is an immediate cash crunch. Workers faced with reduced hours or even layoffs need to relieve financial pressure right now. Taking student loan payments off the plate for six months is one way to do that.
But shaving $10,000 from everyone’s balance will not improve a borrower’s immediate financial situation. That is because borrowers only realize the financial benefits of loan forgiveness at the end of the lifetime of the loan. Forgiving $10,000 now means that a borrower might pay off his loans in full two years earlier than he otherwise would. That doesn’t help right now if he still has seven years to go until the loan is paid.
The 35% of federal borrowers who have less than $10,000 remaining on their student loans would see financial benefits sooner, since the forgiveness plan would pay off their loans in full. But both Republicans and Democrats agree that payments should be paused 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 after the pandemic is over. But even that still does nothing to address the immediate cash crunch that many Americans are facing.
That is why a temporary payment pause alone makes the most sense. It alleviates the temporary hardship many borrowers face, but requires that borrowers resume making payments once things have gone back to normal. It’s true that some borrowers might face “ripple effects” after the pandemic has subsided but the economic downturn has not. But there are already programs in place to help them, such as repayment plans that link monthly payments to income.
The student loan system is not a great channel to deliver coronavirus relief in the first place. Student borrowers tend to skew wealthier than the average American, while those hardest hit by the pandemic will be lower-paid hourly workers who might not have student loans at all. By my estimate, canceling $10,000 of debt for every student loan borrower will cost $370 billion—enough to give every American a check for $1,100. There is no good argument for spending that money on student loan relief instead of direct cash payments to those bearing the brunt of the pandemic.
Democrats might think that student loan forgiveness is a good idea for non-coronavirus-related reasons. It’s not, but that’s beside the point. Politicians should not load up the coronavirus relief package with policies that do not alleviate virus-related problems. As authorities report thousands of new coronavirus cases every day, time is of the essence. In the midst of a pandemic, Congress cannot waste time with political wish lists.
