In January, as one of his first acts as president, Joe BidenJoe BidenPressure grows for breakthrough in Biden agenda talks State school board leaves national association saying they called parents domestic terrorists Sunday shows preview: Supply chain crisis threaten holiday sales; uncertainty over whether US can sustain nationwide downward trend in COVID-19 cases MORE directed the Department of Education to continue the government’s freeze on federal student loan repayment plans. The Trump administration initially paused federal student loan payments in March 2020.
Because of the move, borrowers enrolled in federal student loan repayment plans will not need to make payments until Oct. 2021, at the earliest, and interest will not accrue for any federal student loan borrowers during this period either, including for those who choose not to make payments.
Americans with debt from private student loans – which were much more commonly used prior to the Obama administration – receive no benefits from the policy.
The decision to freeze loan payments will make it easier for millions of borrowers to save money, pay bills or work to reduce debt during the freeze. It will be especially beneficial to workers at government agencies and nonprofits who carry a large student loan debt burden, but it could cause substantial long-term harm to millions of other Americans.
During the freeze, all borrowers who work for nonprofits or government agencies who are enrolled in an income-based repayment plan will continue to accumulate credit toward receiving student debt forgiveness under the Public Service Loan Forgiveness (PSLF) Program.
Under PSLF, borrowers enrolled in income-based repayment plans who make payments for 10 years while working for a local, state or federal agency (including public school teachers) receive total debt forgiveness of their federal student loans. Employees at many nonprofits not affiliated with the government are also eligible.
Because the Trump-Biden loan repayment freeze continues to count non-payments as payments for the purpose of qualifying for public loan forgiveness, there are government and nonprofit workers who are now receiving student debt cancellation without having made the full 10 years’ worth of payments. And the longer the freeze continues – there’s nothing stopping Biden from perpetually renewing the halt in payments – the more it will disproportionately benefit these workers over all others.
It is important to keep in mind that there are no forgiveness limits to the PSLF program. So, for example, it is possible a government worker with $200,000 in student loan debt could save hundreds of thousands of dollars under the PSLF program once hitting the 10-year mark, which, thanks to Trump and Biden, is now easier than ever.
Initially, the Trump administration instituted the freeze to help deal with the potential economic effects of the COVID-19 lockdowns. At the time, no one knew exactly how things were going to play out, and the Trump administration erred on the side of caution, for better or worse.
Today, however, the situation is completely different. The Biden administration knows the vast majority of government workers and nonprofit employees have not lost their jobs as a result of the pandemic, so why is the federal government continuing to freeze loan payments for workers who haven’t lost their jobs? Even prior to the COVID-19 pandemic, borrowers enrolled in an income-based repayment plan paid nothing after losing employment.
And, even more puzzling, why would Biden continue to count non-payments as credits toward achieving the requirements of the Public Student Loan Forgiveness Program?
The only explanation that makes sense is that the Biden administration is trying to keep government workers and Biden’s allies in nonprofits (including think tanks) happy, regardless of the costs imposed on others.
The federal government has already racked up trillions upon trillions of dollars in additional debt trying to deal with the effects of the pandemic. Wasting billions on crony deals for government workers and employees at nonprofits while other Americans are losing their small businesses and getting crushed by COVID-19 restrictions is downright cruel.
The costs of the Trump-Biden student loan policies must be accounted for by hurting someone else, either through taxes or by continuing to print money, which has already caused damaging levels of inflation in key industries, including housing. And the problem is only going to get worse over time, as the federal government’s debt payments continue to eat up an ever-greater proportion of the federal budget.
America needs to change course now, before this serious problem spirals even further out of control.
Justin Haskins is the editorial director of the Heartland Institute. Follow him on Twitter @JustinTHaskins.