New Analysis Highlights Disproportionate Benefits of Student Loan Moratorium

By Hugh T. Ferguson, NASFAA Staff Reporter 

Citing the ongoing costs the federal government is incurring as a result of the pause in student loan repayments and interest accrual, a nonpartisan think tank is urging the Department of Education (ED) to keep its word and ensure the pause ends when it is now slated to expire, in January 2022.

The Committee for a Responsible Federal Budget (CRFB) put together a memo pushing for the creation of better-targeted policy alternatives that would ease borrowers’ costs or make college more affordable.

The memo cites a Congressional Budget Office (CBO) estimate which suggests that the policy costs the federal government $4.3 billion for each month it’s in place — clocking in at $52 billion per year — and would account for almost $100 billion over the length of the program.

“While this expensive and regressive policy may have been justified in the depths of the pandemic, it no longer makes sense, particularly in comparison to other, better-targeted higher education reforms,” CRFB said.

To better demonstrate the costs associated with the moratorium CRFB compared the annual spending to other higher education programs.

The $52 billion spent over the course of one year on the emergency policy is more than double the $23 billion the federal government spent on Pell Grants in 2019 and is nearly twice as much as the $27 billion spent in 2019 on the main higher education tax expenditures, such as the American Opportunity Tax Credit and the student loan interest rate deduction.

The memo’s authors go on to argue that extending this ongoing benefit — much like blanket debt forgiveness, which CRFB also conducted a study on — would be regressive and disproportionately benefit those who borrowed more, who tend to be more highly-educated and have higher incomes.

In response to ED’s announcement that the payment pause would end in January NASFAA President Justin Draeger applauded the extension, noting that many borrowers are still grappling with the fallout from the pandemic.

"We urge the Department of Education to begin the work to implement a smooth, efficient on-ramp to repayment now, without further delay,” Draeger said. “Transitioning millions of borrowers back into repayment cannot be done by simply flipping a switch, and may even require a phased implementation."

He added that ED should utilize the additional extension to ensure borrowers have effective methods to repay their student loans and urged the agency to use the extra time to successfully reenter borrowers into repayment.

While the CRFB memo agrees that the loan moratorium provided important relief to all borrowers at the outset of the pandemic, it argues that a continuation would allow those with higher incomes to have significantly more interest forgiven per month than those with smaller balances.

“Between now and January 31, 2022, the Department of Education and its servicers should work hard to engage borrowers so they are prepared to resume repayments,” the memo argues. “The government should also inform struggling borrowers of the multitude of options available to them, including Income-Driven repayment plans as well as forbearance and deferment.”

 

Publication Date: 8/25/2021


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