Since Joe Biden became president, he has often referred to his plan to eliminate student-loan debts as a game changer. In one sense, it has proven to be a revolution, in the sense that it has made an already horrible system even worse!
Under Biden's plan, the government would provide financial relief to individual student-loan borrowers with annual incomes of less than $125,000 and married couples with incomes of more than $250,000. However, due to legal challenges, the program has been put on hold.
A federal appeals court ruled earlier this month that six states, led by Republicans, were wrong to prevent the government from implementing loan forgiveness. The White House then asked the Supreme Court to take the case. This means the issue will most likely remain on hold for a long time.
Due to the lack of progress on the plan, the government decided to extend the freeze on student-loan payments, which was first implemented during the pandemic. This means that borrowers will no longer have to start making payments on Jan. 1.
It's hard to overstate the mistake of extending the moratorium on student-loan payments for a record eight times.
Although it may be a relief for some borrowers, the rest of the country will still be affected by the moratorium, and it will cost the government a lot of money in the long run. The government has already lost over $155 billion due to the moratorium, and it will cost the taxpayers even more in the years to come.
The extension of the moratorium on student-loan payments is a huge burden on the taxpayers. It's also a subsidy for the wealthy, as many of those who have student-loan debt are high earners.
The government's decision to freeze student-loan payments during the pandemic was a temporary solution to the financial problems that many people were experiencing. However, it's no longer justified now, as the unemployment rate has returned to pre-pandemic levels.
Also, allowing people to forgo monthly payments is not the administration's intention to fight inflation. Many borrowers have already started to believe that they were being tricked.
Biden's motives seem overtly political. After promising to provide massive loan forgiveness to young voters during the campaign, Biden might face backlash if he requires people to continue making payments even before the promised debt relief is delivered.
If the courts prevent the implementation of loan forgiveness, progressive groups will urge the government to extend the repayment moratorium for an indefinite period. This would encourage people to take out bigger loans, as colleges would no longer be incentivized to lower their costs. This could be a worst case nightmare!
Biden should have avoided this mess by working with Congress to fix the student-loan system instead. One of the most important reforms that the government should implement is a simplified repayment plan that will allow low-income students to pay what they can afford.
The government should also improve the data collected on students' career outcomes to prevent institutions from saddling graduates with high debt levels.
These reforms would have made the student-loan system more rational and more fair for both the taxpayers and the borrowers. Instead, Biden has decided to make another costly mistake.