Payments on federal student loans are finally set to resume at the beginning of October, thanks to a clause in the debt-limit agreement struck earlier this year that barred the Biden administration from extending the moratorium for a ninth time. Now the Department of Education must figure out how to transition tens of millions of borrowers back into repayment after a three-and-a-half-year hiatus — a task made more difficult by the Biden administration’s own actions.
The payment pause has been a policy disaster. Since interest was not charged during the pause, it has effectively canceled $240 billion worth of student debt. That’s more than half the amount that would have been canceled through President Biden’s one-time loan-forgiveness scheme, had the Supreme Court not intervened. Wealthier households, which have more debt and hence received more interest forgiveness, benefited the most. And though boosters hoped the pause would help borrowers get on sounder financial footing, research shows it instead induced borrowers to take on more debt rather than pay it down.
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