Rising inflation adds pain to student loan debt

Student loan borrowers will face a serious squeeze this spring when a federal moratorium on their debt payments expires amid surging inflation.

Tens of millions of Americans are bracing to resume paying their student loans for the first time since March 2020, after the fastest annual rise in consumer prices since 1982.

The costs of food, housing and other essential goods are rising while millions of Americans feel the crushing weight of student debt.

“Right now, people’s budgets are already being squeezed by rising food and heating costs. To suddenly hit people with a student loan payment averaging $400 a month would be a severe double-whammy,” said Thomas Gokey, an organizer with the Debt Collective.

Consumer prices increased 7 percent in December from the same month the previous year, which marks the fastest annual increase in prices in almost 40 years. High inflation is a huge political challenge for President Biden and Democrats going into the midterm elections, and advocates have warned that the lack of action to forgive student loan debt will also follow them on the trail.

During his 2020 presidential run, Biden campaigned on forgiving at least $10,000 in federal student loans per person. But progressives have called for Biden to forgive up to $50,000 in federally held student debt per borrower. 

Rising inflation has fueled more pleas for Biden to wipe out student debt through executive action.

“With inflation, people are struggling already and then to have another $500, $700, $1,000 payment a month, I think it’s going to be incredibly problematic. Especially when it comes to thinking about what the administration needs to do to generate excitement among the base in 2022 and 2024, especially among young people. I think his failing to deliver for this key demographic is going to be incredibly problematic,” said Joseph Geevarghese, executive director at Our Revolution.

As the White House faces widespread calls for student debt forgiveness, Biden has pushed Congress to pass legislation charting a path for mass cancellation. But, with his party’s narrow control in the Senate, Democrats are looking to Biden to use his executive authority to cancel debt.

Top Democrats, including Senate Majority Leader Charles Schumer (D-N.Y.), argue that Biden has the authority to cancel student loan debt on his own.

White House officials last spring called on the Department of Education to produce a memo on Biden’s legal authority on the matter. The White House and the agency did not release further information on the status of the memo when pressed by The Hill.

Roughly 43 million Americans owe a collective amount of about $1.6 trillion in student loans to the federal government.

In Biden’s first year in office, nearly $12 billion in student loans was canceled for more than half a million borrowers — but only in certain cases. That includes borrowers with total and permanent disabilities, those who attended now-defunct schools or public service workers. 

Biden has also extended the temporary pause on federal student loans and interest accrual through the start of May, forgoing the previously set Jan. 31 date to lift the forbearance on student loans.

Some experts downplayed concerns about the financial burden a majority of borrowers will face when federal student loan payments resume in May.

In an interview, Mark Kantrowitz, vice president of research at Saving For College, pointed to employment trends as the economy recovers.

“The people who are most affected by economic disruption to the pandemic are not people who have college degrees. Unemployment rates among people who have college degrees are much lower than for the rest of the population,” Kantrowitz said.

The unemployment rate for adults 25 and older with a four-year college degree was 2.1 percent in December, according to the Labor Department, but 4.6 percent of job-seekers with only a high school degree were unemployed.

Sandy Baum, nonresident senior fellow for the Center on Education Data and Policy at the Urban Institute, argued that borrowers with bachelor’s degrees are “much more likely to have been working remotely and have not missed a beat and have not lost any income.”

But Baum told The Hill that, although many borrowers are equipped with “incomes that can repay their loans,” there are others who are not, while pointing to students who attend defunct schools and those who are permanently disabled.

She and Kantrowitz also acknowledged a need for officials to address the racial disparities in student loan numbers.

“Black student debt is a huge problem because Black students do disproportionately come from families, not only with lower incomes, but with lower wealth,” Baum said. 

Labor market discrimination also is a major factor, she continued, pointing out Black bachelor’s degree recipients continue to earn less than their white counterparts, despite possessing the same skills and qualifications.

The Department of Education pointed to Biden extending the temporary pause on federal student payments as “much needed relief” to borrowers when asked about the impact of high inflation on borrowers.

The department vowed to help borrowers when payments resume.

“As payments resume, the Department will focus on making sure that no borrower is forced to make a payment they cannot afford by helping borrowers enroll in income-driven repayment plans or take advantage of other options to address their financial hardship,” a spokesperson said.

While cash-strapped borrowers or those in certain public service careers may be able to enroll in forgiveness or repayment programs, those who don’t will face another hurdle in rising prices. 

A White House official, when asked about rising inflation and the impact on borrowers, pointed to Biden’s plan to reduce prices by going after meat processors and directing the biggest oil reserve release in history.

“The President knows the kind of squeeze that can put on working families, which is why he’s using every tool at his disposal to bring those prices down,” the official told The Hill.

Even so, those efforts could take months — if not years — to yield lower prices and only in certain sectors of the economy. Economists say Biden has little direct ability to unsnarl the tangle of supply chain issues, hiring challenges and pandemic obstacles driving inflation higher.

The Federal Reserve is also poised to begin hiking interest rates to cool inflation as soon as March. But even lower inflation would still leave cash-strapped borrowers staring down high prices.

Natalia Abrams, president and founder of the Student Debt Crisis Center, argued that acting to forgive student loans is how the president can help Americans through high inflation.

“One of the best ways to bring prices down for families and for borrowers is to cancel student debt and beyond that, to continue the pause until we’re truly out of this pandemic,” she said.