Millions of Americans lost their jobs after the outbreak of COVID-19 in early 2020. For many, this disrupted their ability to repay their Federal student loans, so repayments were suspended in March 2020. They were originally set to resume in September 2020, but the repayments pause was extended nine times because the U.S. jobs recovery was considered incomplete. Currently, however, the number of jobs in the American economy exceeds pre-pandemic levels, so the pause is viewed by many as no longer essential.

The Fiscal Responsibility Act was recently enacted by Congress to raise the ceiling for the amount that the U.S. Treasury can borrow to pay its bills. A provision in the Act stipulates that the repayment pause cannot be extended again. It was already set to end 60 days after June 30 or 60 days after the Supreme Court issued a decision on the legality of Biden’s student loan forgiveness plan, whichever occurred first. This schedule is unchanged, but the Act prohibits a tenth extension of the pause.

The end of the pause will affect the millions of Americans who have outstanding balances on Federal student loans. Over $1.6 trillion is owed by about 43 million people, more than Americans owe for any kind of consumer debt other than mortgages. For the last three years, borrowers have been able to use the amount of their monthly payment to pay for other things. The end of this discretionary spending will have far-reaching effects.

There are two consolations for borrowers. One is that their outstanding loan balances have not been accruing interest during the pause. The other is that, when repayments resume in September, borrowers will be paying off their loans with dollars that will be over 18% cheaper than they were in March 2020 due to inflation.

ED Is Prepared to Resume Operations

U.S. Education Department (ED) Secretary Miguel Cardona has made clear that the ED is prepared to resume loan payment operations and that the ED will be ready in September. “We will ensure a smooth return to the repayment process.” said Cardona.

Cardona also praised the new law for protecting borrowers by allowing for future pauses should new emergencies justify them. He stated that, “The deal also protects our ability to pause student loan payments should that be necessary in future emergencies.”

The Effect of the Act on Borrowers 

Advocates for borrowers are unhappy with provisions in the Act, especially regarding its impact on minorities. Mike Pierce, Executive Director of the Student Borrower Protection Center, said in a statement that,

“The deal resumed Washington’s decades-long, bipartisan push to profit off the student debt crisis and squeeze money from student loan borrowers in order to pay the government’s bills. This is a betrayal and is awful on its own terms” .

In a recent article in the Washington Post, Daisy Verduzco Reyes, a sociology professor at UC-Merced, commented on how the student loan payment pause has affected Latinx borrowers and what the end of the pause will mean to them. She stated that,

“For the past 14 years, I’ve tracked a cohort of 60 Latinx millennials, most children of immigrants and childhood arrivals, who were college students in 2008. Most took out student loans. Most recently, I interviewed many of them in 2018-2019, before the student loan repayment pause, and again this April through July, as the pause has been set to expire. I found that for those carrying debt, the pause didn’t just help them to make ends meet during the pandemic — it also enabled them to provide for parents and other kin, pay off consumer debts, have weddings, plan families and start saving toward homeownership.”

Derrick Johnson, CEO of the NAACP, called for Congress to reject the debt provisions of the Act, stating that,

“It would end the student loan payment pause, which provides a vital economic stimulus to millions of students. Black women bear the highest comparative levels of student debt relief because they invest in education at a significant cost.

The Biden Student Loan Forgiveness Plan

Despite the end of the pause, many borrowers may still see significant debt relief if the Supreme Court allows the Administration to move forward with its plan to forgive up to $20,000 of their balances. The plan would cancel $10,000 of Federal debt for individuals who make under $75,000 and couples who make under $125,000 per year. Borrowers who received Pell grants could qualify for an additional $10,000 in forgiveness.

Paradoxically, the Biden plan has been attacked by its opponents as both socialism and a handout for elites. Hence, the Biden forgiveness plan has been halted, at least temporarily, even though almost all of its benefits go to the poorest borrowers. According to the New York Times of May 30,

“The Biden Plan was challenged in court as an illegal use of executive authority. During oral arguments in February, several Supreme Court justices appeared skeptical of the program. A ruling from the court could come at any time but is expected next month. White House officials have said repeatedly that they are confident in the legality of the president’s plan. But the debate about the plan, and the broader issue of student loans, has been fierce in Congress.”

Even the most optimistic accounts concede that the Supreme Court can, and most likely will, block Biden’s plan.

Last week, the House passed a resolution that would use the Congressional Review Act to overturn the President’s debt forgiveness plan, but the Senate has not taken up the measure and Biden has said he would veto it. As things stand, theFiscal Responsibility Act only mandates that the pause on repayments cannot be extended again beyond August 30, a move that the Administration had already made. The Act does not affect the debt forgiveness plan.

A spokesman for the White House said that the President was pleased that his forgiveness plan had not been blocked by the Act. According to a White House spokesman, the new legislation “Doesn’t take away a single penny of relief for the 40 million eligible borrowers. The administration announced back in November that the current student loan payment pause would end this summer, and this agreement makes no changes to that plan.”