Will The Government Extend The Student Loan Repayment Moratorium Or Cancel The Loans Altogether?

The responses from politicians have been confusing and conflicting.

On September 30, the student loan payment and interest moratorium is scheduled to end and those with federal student loans must begin repayment. While there is some talk about extending the moratorium, other signs indicate that reinstatement will at most be delayed for a few more months. The government passed no new stimulus packages or forgivable loans. And just recently, the federal eviction moratorium also ended except for cities with high levels of COVID-19 transmission which were given an additional 60 days of relief. And none of the various versions of the upcoming infrastructure spending bill addresses student loan forgiveness.

With this backdrop, people are asking what the government will do about the growing student loan problem. Will there be another extension? And will there will be a forgiveness plan for student loans in the future? The responses from politicians have been confusing and conflicting.

Democratic Sens. Elizabeth Warren and Chuck Schumer have called for $50,000 to be forgiven although neither have proposed a forgiveness bill in the Senate for an up or down vote. Instead, they have advised President Biden to do so via executive order.

But recently, House Speaker Nancy Pelosi stated that Biden does not have the power to unilaterally forgive student loans, although he has the power to delay.

Biden has repeatedly stated that he supports forgiving $10,000 of student loans per person while anything above that will require legislative action. He has referred the matter to the Department of Justice’s Office of Legal Counsel (OLC) to determine whether he has the legal authority to cancel student loan debt on his own.

The OLC’s opinion will be of great interest since it will likely reflect the president’s view of the issue. While it may appear that he wants an independent legal review, the OLC can sometimes be as impartial as a Supreme Court Justice: impartial on every issue except the important ones.

For example, just recently, the OLC released an opinion stating that the Treasury Department must submit former president Donald Trump’s tax returns to the House Ways and Means Committee. This opinion was released under the leadership of Acting Assistant Attorney General Dawn Johnsen, appointed by Biden at the beginning of the year. This opinion overturns the office’s previous 2019 opinion (then run by Trump appointee Steven Engel) where it stated that the order was unconstitutional because the Democrat-controlled committee had no legitimate legislative purpose for the tax returns.

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For now, Biden has forgiven student loans on a piecemeal basis primarily focusing on victims of for-profit colleges who misled prospective students about post-graduation job prospects.

While this will sound unpopular, it is the wiser choice to end the student loan payment moratorium if circumstances permit as a prolonged moratorium will create a dependence. But if the delta variant of COVID-19 continues to spread, it is possible that the student loan repayment moratorium will be extended. But the federal government should consider requiring proof of vaccination before the extension is granted. Younger people are believed to be less likely to be vaccinated for a number of reasons so delaying repayment might be a good incentive to getting jabbed. Of course, there can be exemptions based on the recommendation of a health care professional.

As for student loan cancellation, based on the confusing and conflicting messages, wholesale forgiveness is unlikely for now. It is a politically sensitive subject among on-the-fence voters and solid Democrat voters will not switch votes on this issue alone. I stated earlier that forgiving student loans will have a negligible effect on stimulating the economy. A report from the Committee for a Responsible Federal Budget, a nonprofit, nonpartisan organization also believes that loan forgiveness will not stimulate the economy.

So what will happen when the moratorium ends? It should not negatively affect the vast majority of debtors. Some will resume their previous payment plan. While others whose finances were adversely affected due to the virus will either enter into forbearance or an income-based repayment plan. Others may get a new job which may qualify them for Public Service Loan Forgiveness.

By the end of September, we will learn whether there will be another extension of the student loan repayment moratorium based on the prevalence of the new delta strain. Responsible people should not put themselves financially in a position where they will be dependent on the moratorium because one day it will end no matter how many angry-faced emojis we put on social media. As for loan forgiveness, don’t count on it anytime soon as it is not a pressing election issue and politicians seem to be too busy fighting over who has the power to cancel.

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Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.