The pause on student loan payments will lift in September, and analysts disagree on how much of an impact it will have on the economy.
Key Details
- On August 24, 2022, President Joe Biden signed an executive order allowing for up to $20,000 in student-loan forgiveness, which was subsequently and repeatedly challenged in court.
- On Thursday, the Democrat-controlled U.S. Senate passed legislation blocking the president’s student loan forgiveness program.
- The Supreme Court is expected to release decisions regarding two lawsuits surrounding the issue by the end of this month—these rulings could strike down or affirm the president’s power to act on student-loan forgiveness from the executive chair unilaterally.
- If the program is struck down, the ongoing pause on student-loan payments will regardless lift in September.
- Eligible student-loan payments have been on hold since March 13, 2020, as part of the government’s pandemic-relief measures.
Why It’s Important
While it is unclear whether President Biden’s executive order has a future, it is also unclear what the immediate effect of the law would be. Goldman Sachs analysts recently predict predicted in a research note that eliminating $400 billion in student-loan balances would have a modest impact on the economy while improving some middle-class families’ purchasing power.
If the law is struck down, student loans will go back into effect amid an ongoing recession and housing crisis that could make the impact more severe, Yahoo Finance notes.
“On net, the end of the student-loan-payment pause is likely to more than offset any boost to consumption from the student-loan forgiveness plan. However, in either case, the impact on spending is likely to be modest in the medium term,” says a research note from Goldman Sachs.
The impact on the overall economy could be marginal, given that the calculated personal consumption expenditure growth would only increase by 0.1%. Still, an impact would likely be notable in September as the first waves of mandatory student loan payments impact consumer spending. Other analysts have argued that debt holders will be placed in greater financial strains due to limited savings and low savings having accumulated in the aftermath of the pandemic.
“Ending the payment pause will put many borrowers’ financial stability at risk, and the Department of Education expects a significant increase in defaults once payments restart,” Aspen Institute Financial Security Program associate director Katherine McKay tells Yahoo Finance.
