The debt limit deal — formally the Fiscal Responsibility Act (FRA) — ends the pandemic pause on payments and interest accrual on federal student loans 60 days after June 30. Furthermore, it requires an act of Congress to institute another payment pause. Though widely panned as unimportant because it aligns the timeline the Biden administration offered the last time it extended the pause, assuredly the move is an important victory for Republicans.
This victory is easy to dismiss because, on the surface, it doesn’t appear to actually change anything. As the Congressional Budget Office explained in its FRA cost estimate: “Based on the Department of Education’s announcement in November 2022, CBO’s baseline incorporates the assumption that the current suspension will end on August 30, 2023. As a result, CBO estimates that enacting this provision would have no effect on federal spending.”
This net zero estimate is based on timing alone, because the pause has been incredibly expensive. AEI’s Student Debt Forgiveness Tracker, which I run, added another $5.98 billion this month. That brings the total forgiveness from the Trump and Biden presidencies to a whopping $292 billion; the pause alone accounts for $225 billion. When it expires, as scheduled by President Biden and now required by the FRA, another $12 billion will have been added to those totals.
The FRA would have done little on the student loan front assuming the Biden administration held to its end date. But that’s a big “if.”
President Trump established the pause at the pandemic’s outset, and Congress soon extended it, through September 2020. Subsequently, Trump extended the pause twice, and President Biden extended the pause six times. Three of Biden’s extensions were described as “final” when they were issued, and until the FRA was passed, the jury was still out on whether the restart would actually begin in August. Indeed, several experts recently expressed that another extension, and even more forgiveness, was possible.
Even in light of this unreliable track record, the FRA still looks to only ensure the inevitable. After all, the Federal Pandemic Emergency ended in May, and the pandemic was the reason for starting and extending the pause. Despite the seemingly straightforward rationale, that logic does not hold up, for two reasons.
The first is that the Biden administration is not abiding by this rationale elsewhere. To wit, the administration has staked its authority for its marquee student loan forgiveness plan on the pandemic emergency. Right now, student loan forgiveness awaits a ruling by the Supreme Court. However, if the court does not block it, student loan forgiveness will go through — well after the Federal Pandemic Emergency has ended.
The second reason is that restarting student loan payments for some 40 million Americans will create significant problems for some borrowers. Exacerbating this challenge are the reported limited resources the Federal Student Aid administration (FSA) has to tackle the restart. But, contrary to public opinion, this funding issue is not the fault of congressional Republicans.
In budget negotiations last winter, GOP lawmakers countered the administration’s request for a 30 percent increase for FSA with a roughly 20 percent increase contingent on the administration’s assent to not use the funding for its unilateral plans for more forgiveness —including not only the marquee $20,000 forgiveness plan but the potentially more problematic and costly plans to change Income Driven Repayment programs. However, the administration balked at the offer, received limited funding for FSA, and can now blame Republican legislators for its trouble restarting payments after the pause.
It is not hard to imagine that the administration would find the challenge of restarting payments with an underfunded FSA sufficient reason to issue another “final” extension to the pause, one that could easily extend into unpredictable politics of an election year. Indeed, these potential problems with restarting payments were a key part of the rationale for the last pause extension.
At about $6 billion a month, the cost of extending the pause through the year’s end would exceed $24 billion — and there would be no certainty of stopping there. The administration’s track record, the FSA restart challenge, political pressures from Democrats and the justification for the last extension all provide the foundation for Biden to issue another one. In this light, the Republican victory of ending the pause in the Fiscal Responsibility Act is an important act of fiscal responsibility.
Nat Malkus is a senior fellow and the deputy director of education policy studies at the American Enterprise Institute.