President Biden's Never Ending Pause On Student-Loan Payments: Hey, It's Just Monopoly Money

 When I was a kid, my childhood friends and I often played Monopoly on those long summer days when time stood still in southwestern Oklahoma.  

Sometimes our games lasted for two or three days. If a kid went broke by landing on Park Place, the player with the biggest bankroll would provide an interest-free loan to keep the game going.

Why not?  It was only Monopoly money. 

Now, the United States is playing a grown-up version of Monopoly. Beginning in 2020, the Department of Education allowed student-loan borrowers to skip their monthly payments due to the COVID pandemic. 

The original pause ended in September 2020 but has been extended eight times.  

In the meantime, President Biden launched his student-loan forgiveness plan to give millions of student debtors $10,000 a piece in student-loan forgiveness.

Biden's plan was challenged in the courts, and the President used this ongoing litigation as an excuse to continue the pause on student-loan payments. 

"It isn't fair to ask tens of millions of borrowers eligible for relief to resume their student debt payments while the courts consider the lawsuit," the President said.

Thus the moratorium on student-loan payments will extend until August 2023 unless the Supreme Court rules on his loan-forgiveness plan by the end of June.

Due to the payment pause, it seems likely that 40 million student debtors will go more than three years without making a single loan payment. During this moratorium, student loans do not accrue interest, and DOE does not assess penalties for non-payment. 

Even better, borrowers in DOE's various income-based repayment programs can count the time their loan payments are paused toward their fixed-term payment obligations. For example, an individual in DOE's ten-year Public Service Loan Forgiveness program (PSLF) who skips loan payments for three years will only be required to make income-based payments for seven years. Sweet!

How much is the loan-payment pause costing taxpayers? According to the Wall Street Journal, the government will have lost $155 billion in uncollected interest by next month. By extending the break until August 2023, the delay will cost taxpayers an additional $40 billion.

So what? It's only Monopoly money. If the federal government runs out of cash, it can always print or borrow more.

Ultimately, I predict, the U.S. Supreme Court will declare President Biden's student-loan forgiveness program unlawful.  The Bident administration asked the Supreme Court to fast-track the case, but I don't think the Court will agree. It will probably be 2024 before the litigation is resolved.

As the loan-forgiveness litigation winds its weary way through the federal courts, Biden will certainly keep extending the loan-payment pause--probably to the end of his administration.

There will likely be two dire consequences if 40 million Americans are allowed skip making student-loan payments for four years.

First, student borrowers will conclude that they will never have to pay back their loans and will be damned angry if the government forces them to resume writing loan-payment checks after four years.

Second, after allowing student debtors to skip making loan payments for several years, DOE  won't be able to get the student-loan program back on track.  It will become like a car that sits idle in a barn all winter.  When spring arrives, the car won't start.

Meanwhile, colleges and universities continue raising their tuition prices, and students are taking out more federal loans.

To quote from an old adage, if something can't last forever, it won't. DOE's Rube-Goldbergian student-loan program will eventually collapse--perhaps sooner than anyone thinks.

Hey, it's only Monopoly money. 

A Student Loan Is Like a Reverse Mortgage: The Borrower Decides Whether to Pay It Back

 Tom Selleck has been hawking reverse mortgages for years. As he patiently explains in television ads, a reverse mortgage is just a loan, except the borrower decides how to pay it back. 

All true, of course. Nevertheless, reverse mortgages can have drawbacks. The biggest drawback is that homeowners can lose all the equity in their homes, leaving less money for their heirs.

Thanks to the COVID pandemic, student loans have become much like reverse mortgages. President Trump put a pause on student-loan payments in 2020, allowing millions of borrowers to skip their monthly loan payments without accruing any interest or penalties. 

President Biden extended the pause several times so borrowers could avoid making loan payments for almost three years. The latest delay lasts until the end of December.

In August, President Biden issued an executive order forgiving $10,000 in student-loan debt to everyone with a student loan balance whose income is less than $125,000.

I think the Biden Administration hoped $10,000 in student-loan forgiveness would placate college borrowers who will have to resume making their monthly loan payments in about seven weeks.

Unfortunately for President Biden, the Eighth Circuit Court of Appeals enjoined him from implementing his loan-forgiveness plan. In addition, a federal court in Texas ruled that the program is unlawful.

This setback has prompted student-debtor advocates to call for Biden to extend the loan-payment pause until the legality of his loan-forgiveness scheme is settled in the courts. As Persis Yu, a spokesperson for the Student Borrower Protection Center, explained, "Until the administration can deliver on debt cancellation, it really cannot turn on payments."

Cody Hounanian, executive director of the Student Debt Crisis Center, argues that students should not be forced to begin repaying their student loans until the student-loan program is fixed. 

To restart student loan payments with all this disruption, without borrowers being put back into a system that's stable and settled, to me, is just another obstacle that borrowers really experienced and understand more than anyone else.

The legality of Biden's student-loan forgiveness scheme won't be resolved by the federal courts for months--perhaps years. In fact, the dispute may require a ruling by the U.S. Supreme Court.

Suppose Biden succumbs to arguments that borrowers should be allowed to skip payments until the loan forgiveness litigation is concluded. In that case, millions of borrowers will likely go five years without making any payments on their student loans.

And when the payment moratorium finally ends, student debtors can sign up for a generous income-based repayment plan that will allow them to make token loan payments so small that they will never pay off their loan balances.

Thus, as I said, federal student loans will essentially become reverse mortgages. The Department of Education will lend billions of dollars to millions of Americans, and the borrowers may never be required to pay it back. 

Student borrowers can skip their monthly loan payments- maybe for a long time.

Like Prisoners on Death Row: 25 million student debtors may get another reprieve from making their student-loan payments

Around 2,500 prisoners sit on Death Row in American prisons. Nearly 700 condemned men await death in the Golden State of California. A couple hundred are housed on Death Row in Texas, the Lone Star State. And Florida--the Sunshine State-- has 330 prisoners who've been sentenced to die.

How long do condemned prisoners sit in prison before being executed? On average, 19 years. Most men on death row can postpone their execution date by filing multiple appeals in the courts.

Of course, Americans living in freedom cannot compare their situation to the men on Death Row. Nevertheless, student-loan debtors are somewhat like condemned prisoners. They are seeing their lives drain away while the federal government issues multiple stays of execution on their student-loan payments without giving them real relief.

In March 2020, the Department of Education allowed 25 million student debtors to stop making payments on their loans due to the economic disruption of the COVID pandemic.  DOE said it would not penalize borrowers who didn't make their loan payments and wouldn't charge interest on the underlying debt.

That moratorium has been extended four times, and the Biden administration may extend the moratorium yet again.

Are these debt-forgiveness edicts a good thing for the nation's overburdened student-loan borrowers? Yes, of course.

But there are psychological and emotional costs to being burdened by debt that can never be paid back, costs that some federal bankruptcy courts have explicitly recognized. And these costs are not alleviated by giving college borrowers a series of loan holidays.

And allowing 25 million Americans to skip their student-loan payments for two years does nothing to solve the student-loan crisis, which has grown to catastrophic proportions. Together, American college borrowers owe $1.8 trillion in student debt and another $150 billion in private student debt.

Maybe President Biden will forgive $10,000 in personal student debt as he promised during the 2020 presidential campaign. But that will do little or nothing to ease the debt burden of most borrowers.

Perhaps Congress will pass legislation to forgive all federal student-loan debt, or President Biden will do that by executive order. But I think relief of that magnitude is unlikely.

In the meantime, while our legislators and policymakers ponder global solutions,  why doesn't Congres simply amend the Bankruptcy Code to allow insolvent student borrowers to discharge their student loans in bankruptcy?

But Congress probably won't do that. For all the sympathetic rhetoric, Congress is content to allow millions of Americans to sit helplessly in a vast debtor's prison without bars--financially unable to buy homes, save for retirement, or start families.

In the meantime, college borrowers live much like the men on Death Row. Like condemned prisoners, they get numerous reprieves from making payments. They get deferments, they sign up for long-term income-based repayment plans, and they get to skip loan payments during the COVID crisis. 

Condemned prisoners whose sentences are postponed again and again will never be free. Some will eventually be executed, but many of them will die of old age.

Likewise, America's student loan debtors can manage their massive loan debt with various types of reprieves. They can apply for economic-hardship deferments. They can sign up for long-term, income-based repayment plans. They can skip payments during the COVID loan-payment pauses.

But millions of them will never be free of their college debt. They will die before it's repaid. That's a high price to pay for going to college.

 

California's death row