Government

The Student Loan Moratorium Is Likely To Be Extended Again Because Of Politics

If there is another moratorium, chances are it will last until early 2023. And then what?

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Student Loan debtCurrently, the student loan moratorium is set to end in May at which point repayment will begin. But it appears that President Biden may extend it yet again.

Why? The official reason will likely be due to inflation which has supercharged because of the invasion of Ukraine. With people paying more for gasoline and other goods and services, they may not have enough money to pay their student loans.

While this could be true, another reason for the extension might be the upcoming midterm elections.

While President Biden’s approval rating has improved recently, whether the Democrats will control the House and Senate in 2023 is questionable. There is concern that if student loan repayments are reinstated, this might incentivize moderates to vote Republican and young people to simply stay at home, which pretty much means the same thing in America’s two-party political system.

On the other hand, extending the moratorium yet again could alienate some Democrat voters who have paid their loans back. Most will probably agree to a fair repayment plan with forgiveness potential based on individual circumstances but not a prolonged moratorium which may eventually turn into a de facto forgiveness.

Why would a student loan debtor vote Republican even though they are very likely to restart repayment? Perhaps there are those who would prefer a change in leadership and policy direction, particularly when it comes to dealing with inflation, COVID-19, and involvement in Ukraine. But it’s not worth it if it means having to repay their loans again.

But even if Republicans end up controlling Congress, they will have difficulty implementing a repayment plan while Biden is still in office. Only the Secretary of Education can reinstate repayment. A Republican-led bill to force repayment will likely be vetoed and will not have enough Democrat support to override it.

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If there is another moratorium, chances are it will last until early 2023. And then what? If Democrats maintain their slim majority, then they may have to consider kicking the can yet again if they think it will affect the 2024 election. And this can keep going indefinitely which means that student loans will become the Democrats’ third rail. But at the same time, voters may not want Democrats to have too strong of a majority because they may be willing to start loan repayments and take the political hit in order to bring down a deficit or finance another infrastructure program.

But even if there is an indefinite moratorium, voters with student loans will get tired of waiting and demand loan forgiveness because it is possible that Republicans can get elected and then likely start repayments.

And then there is the question of loan forgiveness. Democrats have proposed forgiving between $10,000 to $50,000. The problem is that there are all kinds of student loans and forgiving only federal loans will be inequitable. Also, it does not address the problem of education costs that rise over the rate of inflation. Until that is addressed, loan forgiveness will have to be done again and again.

In the final analysis, President Biden and the Democrats will have to either end the student loan moratorium eventually or have a loan forgiveness plan. The constant can-kicking will frustrate and worry voters with student loans who may one day vote for someone offering a solid plan. And the longer the moratorium exists, the more dependent voters will become, especially considering that many are living paycheck to paycheck. Those with low incomes should be enrolled in an income-based repayment plan so repayment won’t create a financial hardship. But those who can pay should pay, otherwise the government is exacerbating wealth inequality.

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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 stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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