The long-lasting extension of student loan repayment freeze is benefiting wealthier borrowers, according to University of Virginia economics and education professor Sarah Turner.
Student loan payments were first paused in March 2020 under the Trump administration in response to the COVID-19 pandemic, but was extended six times by President Joe Biden and is currently scheduled to resume before September 1, Turner wrote for the Brookings Institute, a liberal public policy nonprofit located in Washington D.C. Wealthier borrowers are more likely to benefit because they typically have higher student loan payments and can accrue interest on savings rather when rates are high, according to Turner.
“Borrowers who earned graduate or professional degrees tend to have both higher loan balances (because they borrow more than undergraduates) and higher incomes (because many graduate degrees have high returns) than those with a bachelor’s degree or less,” she wrote. “As a result, while households across the income distribution benefit from pausing payments and interest, the total value of the pause is largest for households in the top deciles.”
Since 3/2020, payments + interest accumulation on most federal student loans paused. Dept of Ed & borrowers must prepare for payment restart before fall 2023. Helping borrowers enroll in programs that protect from financial distress when payments resume needs to be priority.
— Sarah Turner (@turnersarahe) April 13, 2023
Some high-income borrowers did not experience wage loss during the pandemic, Turner wrote. Increased wages and low unemployment puts borrowers in a recoverable position from the COVID-19 pandemic.
The Biden administration proposed a plan in August 2022 to eliminate $20,000 in student debt for borrowers who received Pell Grants and $10,000 for those who did not, but is currently in limbo as the Supreme Court determines its legality. Student loan repayments are expected to resume 60 days after a decision is made, according to the Federal Student Aid (FSA) office.
The argument was also made in an Education Next article, which was authored in part by Turner. The authors analyzed household student loan balances and earnings and found that “the across-the-board pause on federal student loan payments disproportionately benefits the most affluent borrowers.”
“Continuing the payment pause without means-testing its benefits leads to ballooning costs for taxpayers,” the authors wrote.
The student loan repayment pause is estimated to cost $5 billion per month, according to a November 2022 report by the Committee for a Responsible Budget.
While the pause may benefit wealthy borrowers, others may struggle once payments resume, according to Turner. Borrowers should brace themselves to continue make payments to lower their debt by enrolling in programs to help with repayments including the Income Driven Repayment plan and Fresh Start, which is a Department of Education one-time program “that offers special benefits for borrowers with defaulted federal student loans,” according to the FSA.
The Brookings Institute and Turner did not immediately respond to the Daily Caller News Foundation’s request for comment.
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