The US economy has been 'more than fine' without your student debt

·7 min read
UMass Boston Class of 2021 and 2020 Commencement Ceremonies
UMass Boston Class of 2021 and 2020 Commencement CeremoniesCraig F. Walker/The Boston Globe via Getty Images
  • Student-loan payments will resume 60 days after June 30, or 60 days after the Supreme Court decides on the legality of Biden's debt relief plan.

  • There's controversy over the merits of broad relief, with some arguing it's bad for the economy.

  • But experts told Insider it gave borrowers more financial flexibility, allowing for the pursuit of better jobs.

It's been over two years since millions of borrowers like Gwen Carney were subject to monthly student-loan bills.

Carney, a 61-year-old single grandmother with $75,000 in student debt, told Insider the pause on federal student-loan payments gave her an extra $200 a month in startup cash to launch a side-gig sewing face masks. Her sales helped her afford food and utility payments.

During that time, Carney was just one of the borrowers who were able to pay off other forms of debt, afford basic necessities, and contribute to the economy. Her story shows the extra juice that delaying — or as some would argue, canceling — student debt can provide to people's lives and the economy as a whole. As that argument goes: Less debt equals more economic freedom for people and more vitality for the country.

To take the relief even further, President Joe Biden announced a plan to cancel up to $20,000 in student debt for federal borrowers at the end of August. But in November, two conservative-backed lawsuits paused the implementation of the plan, and the Supreme Court concluded oral arguments on both of the cases on Tuesday. It will decide if Biden's relief is legal by June, and until then, student-loan payments will remain on pause.

The economy has been "more than fine" during the pause on payments, Marshall Steinbaum, senior fellow at the Jain Family Institute and economics professor at the University of Utah, told Insider. Workers have gained the financial flexibility to quit their jobs and pursue other opportunities, marking "a real shift in how the economy has worked throughout the living memory of anyone who's really alive now."

Steinbaum said that those against broad relief and newfound worker power "want to return to a world where workers are lucky to have even one job and will basically take anything they're given by their bosses, including that they have to repay their student loans."

The pause has already been extended 5 times

Former President Donald Trump first paused student-loan payments, with waived interest, in March 2020.

Since President Joe Biden took over, the pause has been extended an additional five times. After Biden announced up to $20,000 in student-loan forgiveness for federal borrowers at the end of August, two conservative-backed lawsuits paused the implementation of the plan in November. In light of the legal challenges, Biden extended the pause through 60 days after June 30, or 60 days after the lawsuits are resolved, whichever happens first.

The Supreme Court concluded oral arguments on the cases on Tuesday and is expected to issue a final decision by June.

Some advocates argued that if the pause can continue to be extended, there's no reason why student debt cannot be canceled altogether, especially because Biden used the HEROES Act of 2003, which gives the Education Secretary the ability to waive or modify student-loan balances in connection with a national emergency, for both the extensions and cancellation.

Plus, the extra $5 billion per month in Americans' pockets, per the Education Department, could be quite the boon for the economy.

Massachusetts Rep. Ayanna Pressley told Insider on Tuesday that she will "absolutely" push for payments to remain paused until borrowers get relief.

"It's been game changing and transformative for so many people," Pressley said. "By eliminating that bill, I mean, do you all understand that there are people that are paying monthly student loan of bills that are the equivalency of a mortgage?"

Pausing payments has given borrowers more economic freedom

In addition to the pause on student-loan payments, millions of Americans have been participating in the Great Resignation by quitting their jobs in pursuit of better opportunities.

Charlie Eaton, economic sociologist and researcher at UC Merced and co-author of a Roosevelt Institute study analyzing the impacts of student-debt cancellation, told Insider that "one of the great features of today's economy" is the Great Resignation — and resuming student-loan payments would impede that.

Eaton's study concluded that canceling $50,000 in student debt per borrower would grant over $4,000 to households in the lowest-income groups — money that could stimulate the economy if not used for monthly payments. Biden's plan did not go that far, but the $125,000 income cap on the relief ensured the benefits would go to the lowest earners.

"If people are trying to get back into the labor force, but you can't get a home loan or a car loan, or can't buy a car, it makes it harder for folks to go find jobs that they are willing to take," Eaton said, referring to the decline in homeownership among those burdened with student debt. The National Association of Realtors recently found more than 51% of borrowers are delaying a home purchase because of their debt.

'There's no doubt' the government can afford broad relief

After Biden announced his student-debt relief plan in August, the Education Department said it's estimated to cost $30 billion annually, with reduced cash flow over that time period to be around $305 billion. It noted uncertainty with making economic forecasts given it's currently unclear how many people would actually participate in the program.

And in a 2018 paper from the Levy Economics Institute of Bard College, co-authored by Steinbaum, it found broad debt cancellation could boost real gross domestic product by an average of $86 billion to $108 billion per year, resulting in lower unemployment levels that would lead to roughly 1.2 million more jobs annually.

"If we cancel student debt, what that really means is the federal government is choosing not to collect payments from debtors on the debt that's already issued," Steinbaum said. "Can the federal government afford that reduction in revenue of, say, $100 billion a year or some number like that every year, indefinitely? I think there's no doubt the answer to that question is yes."

Republican lawmakers, meanwhile, have blasted the cost of the plan and said it would benefit the highest earners. GOP lawmakers on the House education committee wrote in a Tuesday blog post that the "Biden administration simply moved the loan debt, agreed to by millions of student loan borrowers, onto the backs of American taxpayers. Biden's student loan bailout will cost every taxpayer, even those who never went to college, at least $2,500."

Left-leaning economists push back on this argument, saying that broad relief would benefit low-income earners most. The Roosevelt Institute cited the 61% of students with incomes of $30,000 and under who have debt, compared to the 30% of students with incomes over $200,000.

Recent data from the Education Department also found that 81% of all applications for Biden's debt relief came from the bottom 80% of districts based on average income, and the bottom 80% of those districts have more borrowers eligible for relief than the top 20%.

But to be clear, we don't have the most concrete data about the effects of student loan relief — since, well, it hasn't been done.

Regardless of the true impact broad relief will have on the economy, the payment pause has lifted a significant hit off borrowers' backs. One previously told Insider that the lack of monthly payments on her student loans saved her $377 a month, which allowed her to fully pay off the medical bills from having a baby.

"This is basically a kind of ball and chain around a lot of people's ankles that was lifted at the start of the pandemic," Steinbaum, the University of Utah economics professor, said. "And I suspect that it's had a major positive effect on their financial well being and their purchasing power."

Borrowers like Gwen Carney can attest — the pause on payments gave them the relief they desperately needed. They only wish it wasn't temporary.

Do you have a story to share about student debt? How as the pause on payments impacted you? Reach out to Ayelet Sheffey at asheffey@insider.com.

Read the original article on Business Insider