Student debt is still weighing down the American economy, says Gary Silverman, the United States Financial Editor of the Financial Times – despite Biden’s announcement that student loan debt up to $10,000 would be forgiven.
Over $1.6 trillion of student debt is outstanding in the U.S., creating a dark cloud that hangs over the American economy, Silverman says. The federal government has ceased to collect on the majority of these loans, and many borrowers are taking the time to save their money rather than pay off their debt. Four out of five student borrowers have withheld some or all of their student debt payments since April of 2020, says a report from Philadelphia Fed. And New York Fed economists note that 38 million borrowers have benefitted from this pause on collections.
The pause was scheduled to end August 31, but the Biden administration recently extended it once again – Silverman says this could be to prevent disgruntled voters from switching candidates in November's midterm election. But this cycle of putting off student loan collection is an interminable concern. And this is a temporary solution to a severe and permanent problem that will require long-lasting policy changes both parties can agree on.
Silverman originally noted that high inflation and recession fears will impede any imminent debt forgiveness. But on August 24, Biden announced the forgiveness of up to $10,000 in student loan debt for borrowers earning up to $125,000 per year. This effectively eliminates debt for more than 20 million borrowers, or 45% of students with loan debt. The aforementioned report from Philadelphia Fed described many student borrowers as "chronically struggling," meaning that they live paycheck to paycheck, leaving them financially unable to pay off loans on their own. Additionally, those deemed "chronically struggling" did not earn a degree or get a job in the area of their degree, despite taking out thousands of dollars in student loan debt.