Delay on student debt cancellation decision has borrowers anxious

“The waiting, the not knowing, anticipating a decision, it’s giving me anxiety. I know I’m not alone,” said DeMarco, a traveling nurse in Kansas City, Mo., with $68,000 in student loans.

Since taking office, Biden has fueled speculation about whether he’ll deliver on a campaign promise to cancel some of the $1.6 trillion held in federal student debt. In April, the president told a meeting of Hispanic lawmakers that he was open to canceling student debt, then later told reporters he’d have an answer on additional forgiveness “in the next couple weeks.”

But more than a month later, a decision has not been announced.

Natalia Abrams, founder of the Student Debt Crisis Center, an advocacy group, said the delay will increase stress and anxiety. “Borrowers need to know so they can plan their financial lives,” Abrams said.

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The Washington Post has reported that White House officials are planning to cancel $10,000 in student debt per borrower for Americans who earned less than $150,000 in the previous year, or less than $300,000 for married couples filing jointly. People with knowledge of the matter say the income caps are in flux as some Democratic lawmakers implore the White House to abandon means-testing.

The people, who spoke on the condition of anonymity because they were not authorized to discuss the deliberations, say the Biden administration is still sussing out the political impact and logistics of executing the policy. As a result, they say, a decision is no longer imminent.

“The President understands firsthand the burden student loan debt can put on families, and the Administration is continuing to assess options for cancellation,” said Abdullah Hasan, a spokesman for the White House. “No decision has been made.”

Activists and liberal lawmakers are clamoring for Biden to wipe away some student debt before the pandemic-induced moratorium on loan payments ends Aug. 31. About 41 million borrowers are benefiting from the pause on paying off their federal student loans that began two years ago under the Trump administration.

Hasan noted that Biden has kept the moratorium in place during his time in office and has already provided 1.3 million borrowers a total of $25 billion in debt relief.

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Advocates say that rather than repeatedly extend the moratorium, Biden must relieve as many people as possible from the burden of education debt. Critics of debt cancellation argue that lavishing loan forgiveness on college graduates is an irresponsible and costly policy, one that does nothing to fix the troubled lending system.

With his federal student loan payments on pause since March 2020, DeMarco has paid off $42,000 in private education debt and has been building his savings. He and his wife are keen on purchasing a home but are reluctant to move forward until they have a clearer picture of what will happen to his federal loan balance.

Before the moratorium, DeMarco was handing over $1,000 a month to the Education Department to repay loans he took out for a bachelor’s in health science from Truman State University and a nursing degree from William Jewell College.

The moratorium arrived at a crucial time. DeMarco has spent much of the last two years caring for coronavirus patients in intensive care units across the country. The work was grueling, he said, and the last thing he needed was to worry about his loans.

“The prospect of having any debt erased, especially after risking my life on the front lines … it would be life-changing,” DeMarco said. “Ten thousand may not seem like much with what I owe, but it would help.”

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At an event hosted by the Bipartisan Policy Center on Monday, Undersecretary of Education James Kvaal acknowledged that broad-based debt cancellation would help many borrowers. “At the same time,” he added, “and I think the students and other advocates of broad-based would tell you, we also need permanent solutions.”

Higher-education experts worry that delaying a decision on cancellation could hinder other policy priorities at the Education Department.

For instance, the administration plans to help 7.5 million people exit default on their federal student loans, sparing them from the seizure of wages, tax refunds and Social Security benefits. Sarah Sattelmeyer, a higher-education project director at the think tank New America, said the department should have a clear accounting of its portfolio of defaulted loans in designing the initiative, dubbed Fresh Start.

“We need to know what’s happening with cancellation before they can execute that policy,” Sattelmeyer said. “If [Biden] forgives $10,000 in debt, that wipes out about half the default portfolio. That would make Fresh Start a very different program to pull off.”

She is also concerned that dragging out an announcement on cancellation will further erode borrowers’ trust, especially as the Biden administration seeks to reform the federal student loan system.

“If you are rebuilding a system and asking people to have faith in it, this is damaging,” Sattelmeyer said.

Sarah Lippitt, 36, of Tucson, said she had given up on the possibility of cancellation, skeptical about the president’s commitment to the policy. She started to come around after seeing articles about the White House reviewing Biden’s authority to act or weighing restrictions. Her hope, however, is turning to pessimism.

“It’s been hard because they just keep going back and forth, and every few months they just bring it up. I don’t know if they are doing it to fire up the base … but at this point, I’m not very optimistic,” said Lippitt, an account manager at a charitable nonprofit who owes $40,000 in student loans.

Lippitt has also been frustrated by the string of last-minute extensions of the payment pause by the Biden administration. While she is grateful for the reprieve, she said, the uncertainty has left her in financial limbo.

“I know that I have this $450 payment every month and it changes our family’s budget, what we’re going to spend, what we’re going to save,” Lippitt said. “Every time I think they’re going to reinstate it and then there is another pause at the last minute, it makes it really hard to plan.”

This week, Education Secretary Miguel Cardona signaled that another extension may be on the table. Sen. Jeanne Shaheen (D-N.H.) on Tuesday questioned Cardona about when the moratorium will end, during a Senate Appropriations subcommittee hearing on the Education Department’s fiscal 2023 budget request.

“I don’t have any information now to share with you. … I know we have a date, and it could be that it’s extended,” Cardona told lawmakers. “Borrowers will have ample notice.”

Abrams at the Student Debt Crisis Center is skeptical. She said Biden’s track record of keeping borrowers in the dark until the last minute does not inspire trust, whether it’s a decision on the moratorium or debt cancellation.

Biden “has created unnecessary confusion and stress for many families,” Abrams said. “Borrowers need to know what their futures hold as soon as possible.”