Editorial: Extend the reprieve on student loan payments

By The Herald Editorial Board

Since the start of the pandemic two years ago this month, borrowers on the hook for federal student loans have benefited from a break in making their monthly payments on their loans, a welcome reprieve during covid-19’s economic turmoil.

Most who have left college — whether they exited with a degree or not and with many still paying back loans years after leaving school — still carry a significant sum. The average student loan debt for the class of 2020 ranges from a low of $18,350 in Utah to a high of $39,950 in New Hampshire, according to a recent report by the Institute for College Access and Success. Class of 2020 graduates in Washington state are on the lower end of that range, owing an average of just under $24,000.

Not counting loans and refinancing by private lenders, more than 43 million U.S. borrowers owe a total of $1.61 trillion on student loans, an average of more than $37,000. Mortgages still make up the bulk of U.S. consumer debt at 69 percent, but student loans account for 11 percent of total consumer debt, greater than auto loans at 9 percent and credit cards at 5 percent.

That pause in payments was scheduled to end in May. But, with a record rise in inflation now following on the heels (knock on wood) of the pandemic, that date may be pushed back again.

The federal Department of Education has told the servicers that manage the federally backed loans not to send notices to borrowers regarding the expected resumption of payments in May, signaling possible executive action by the Biden administration. White House Chief of Staff Ron Klain, interviewed on a podcast, said President Biden was expected to make a decision before payments were to resume to either extend the breather on payments or announce the cancellation of at least some student debt.

This week, Sen. Patty Murray, D-Wash., chairwoman of the Senate Health, Education, Labor and Pensions Committee, has called on the Biden administration to extend the pause in payments until at least 2023, giving the Education Department enough time to fix a broken repayment system.

“I’ve heard horror stories from so many people who are struggling with the system. It’s not just an inconvenience, it’s just not working,” Murray said in an interview Tuesday with The Washington Post. “We need to extend the pause and … make sure when payments resume, borrowers get a fresh start.”

While borrowers are offered monthly payment plans that are based on earnings and family size and the promise of balance forgiveness after 20 to 25 years of regular payments, the plans can be difficult to navigate and — before the pandemic forbearance — debts often snowballed when payments were less than what was added each month in interest.

The Department of Education, the Post reported, has proposed a new plan, called Expanded Income-Contingent Repayment that would lower monthly payments and forgive unpaid interest for low-income borrowers, but it would apply only to undergraduate loans; graduate student loans and federal parent loans would be left out of the program.

Murray called for a program that applies to all borrowers, prevents debts from ballooning over time, streamlines enrollment and puts borrowers who had defaulted before the pandemic back in good standing, giving them a second chance to repay their loans.

An extended delay in repayment isn’t the debt cancellation on student loans that some have sought, but while that certainly would be good news for some 43 million Americans, the balance of U.S. taxpayers might have other thoughts. Even a partial wipe-out of student debt would be costly. Eliminating up to $50,000 of individual student loan debt — as proposed by Murray’s fellow Democrats, Sens. Elizabeth Warren of Massachusetts and Chuck Schumer of New York — would cost about $1 trillion; a more modest forgiveness of $10,000 each — as Biden earlier proposed — would cost about $373 billion, according to a Brookings Institution report. And a broad-based program such as those — which wouldn’t account for income or family size — would mean much of the cost would benefit higher-income borrowers who don’t necessarily need the help.

As well, student loan forgiveness for current borrowers leaves out those who paid off their loans years before and those who will have to take out loans in the future.

There are other solutions that such an investment would make better use of, including increases to financial aid for low-income students, students of color and those with disabilities.

In the most recent federal spending package, the Pell Grant program increased its maximum award amount by $400, its first such raise in more than 12 years. As well, the spending package included $1 billion in additional financial aid programs, $65 million for child care programs for student parents and $885 million in aid for under-sourced colleges and universities that serve a higher percentage of lower-income students and students of color, Murray announced in a release.

A similar investment could make community college and trade school tuition free, and would encourage enrollment in schools hit hard by the pandemic and produce a pool of workers prepared for the jobs that already are demanding more workers for a growing U.S. economy. That proposal was originally included in Biden’s Build Back Better plan, but was dropped early in the plan’s unsuccessful negotiations.

Offering that assistance also might apply some pressure on public and private four-year universities and colleges to better control their costs. According to a report last year by the American Council of Trustees and Alumni, the package of in-state tuition and fees at four-year universities nearly tripled over the past 30 years, a 178 percent increase since 1990. The report also found that while salary costs for four-year institutions increased 10 percent for professors and 27 percent for other instructional staff between 2012 and 2018, it also increased 33 percent for colleges’ administrative and financial operations. For every tuition dollar spent at a public four-year school, 23 cents went to instruction, 38 cents to administration and 40 cents to student services.

Rather than wiping out existing debt — and then having to again confront the same debt problem for future students down the line — targeted investments should be made now to benefit those most in need who can turn post-secondary education into meaningful employment and family-wage careers.

Extending the forbearance on student loans will allow time to improve the nation’s system of student loans and strengthen a financial aid system that can limit the need for loans in the first place.