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‘Historically large’ rise in delinquencies and defaults
US Undersecretary of Education James Kvaal speak in a recent court filing that if the government were not authorized to reduce debt, there could be a “historically large increase in the amount of federal student loan delinquency and default as a result of the pandemic.” COVID-19.”
Despite student loan deferrals during previous natural disasters, Kvaal writes, default rates skyrocketed as payments resumed.
The pandemic relief policy that halted federal student loan payments has been in effect as of March 2020, and payments will not be scheduled to resume until after the litigation over the pandemic. the president’s plan is settled or by the end of August – whichever comes sooner.
s[T]Kvaal added that the one-time student loan debt relief program is aimed at avoiding” soaring default rates.
Kvaal said the borrowers most at risk of default are those whose student loan forgiveness plan Biden will wipe out their balances completely.
The administration estimates its policy will do so for about 18 million people.
“These student loan borrowers have a reasonable expectation and belief that they will not have to make additional payments on their federal student loan,” Kvaal said. “This trust can prevent them from making the payments even if the Department is prevented from doing the write-off.”
‘Serious’ political consequences
Astra Taylor
Source: Isabella De Maddalena
Astra Taylor, co-founder of Debt Collective, an association for debtors, said restarting federal student loan payments without forgiveness would have political consequences “serious” for Democrats.
“[Biden] will launch his 2024 re-election campaign as America’s debt collector,” she said.
If the “ultra-conservative U.S. Supreme Court” blocks the president’s plan, Taylor said, Biden must explore other legitimate ways to bail out the borrowers.
She pointed to the possibility of the president using another law to justify his plan, such as Higher Education Act 1965states that the Department of Education may “exercise, pay, compromise, waive or release any right, title, claim, lien” relating to federal student loans.
Currently, the Biden administration is using Hero Act 2003 to argue that it has the authority to cancel student debt.
That law allows the Department of Education to modify federal student loan programs during a national emergency. Critics accuse the administration of using the coronavirus pandemic to deliver on campaign promises and say the relief is not targeted at people experiencing financial hardship because of Covid.
Higher education expert Mark Kantrowitz said another avenue the president could take is to try to extend indefinitely the moratorium on federal student loan payments during the pandemic.
That move, Kantrowitz said, “is more likely to pass legal challenge.”
‘A disastrous blow to black Americans’
The country’s $1.7 trillion student loan crisis has hit black Americans hard.
On average, black student loan borrowers owe $7,400 more upon graduation than their white counterparts, a Brookings Academy report found.
That inequality has only gotten worse over time: Black college students owe an average of more than $52,000 four years after graduation, compared with about $28,000 for the average white graduate .
Wisdom Cole, country director of youth and college division at the NAACP, said if Biden’s student loan forgiveness fails, it would be a “catastrophic blow to people”. Black America”.
“The racial gap between rich and poor will widen and the vicious cycle of economic inequality will continue,” Cole said. “If our leaders truly believe that Black lives matter, they should understand that failure is not an option.”
