Will student loans be forgiven before payments restart in May (Jan 2022)?

My Prognosis:


Prediction Date: 01/27/2022

Deadline Date: 05/01/2022

Student loans have been a hot topic for a subset of the Gen X, millennial and Gen Z cohorts who have been struggling to wrap their arms around a large debt load brought on by higher education. The key proposal by both concerned citizens and a subset of the democratic party is to enact broad student loan forgiveness, cancelling $50,000 off the balance and lessening the long term burden on borrowers.

Currently, student loan payments have been suspended as part of a Covid related debt relief program through April 30, 2022, and the hope for the petitioners is to forgive the debt before payments restart.

Student Loan Overview

Student loans are a uniquely problematic debt. Unique among consumer debt, student loans cannot not be easily discharged in bankruptcy (without extensive paper work and filings not found with other types of debt). Instead, student loans stay with you and can be directly garnished from your paycheck. This rather punitive form of debt came about to prevent new graduates from immediately declaring bankruptcy at the age of 21 to avoid paying back their debt, and then being able to borrow with a clean record at the age of 28.

Unfortunately, borrowers are typically exploited when they take out the loans – too naive about working conditions and the real world to understand the burden that they’ve signed up for when taking out the loans and too hopeful about the boost in income that they would expect with a college degree. Additionally, many colleges and universities have taken advantage of the wide availability of student loans, with college tuition inflation outpacing by almost 6x since 1980

average cost of college in the U.S.
Source: Visual Capitalist

Current State of Student Loan Forgiveness

While on the campaign trail, President Biden had expressed sympathy for cancelling up to $10,000 of student loan debt as it became a major campaign issue that helped to unify the progressive wing of the Democratic party (led by Senator Bernie Sanders).

Source: Oregon Public Broadcasting

However, as we’ve seen in President Biden’s first year, not only has he not made it a major issue (you could argue that the President has taken a rather risk-adverse stance to revert back to a pre-Trump administration, as opposed to recognizing the world has changed and driving the conversation for true change), but that he is stymied by a Congress that is unable to enact reform. He is on the record saying he would sign any bill put up by Congress that cancels $10,000 of student loan debt – but it’s clear that won’t happen.

As of now, members of the Democratic party have asked him to use an Executive Action to cancel student debt, and asked him to release a study made by the White House on whether he had the authority to do so. The Education Department has outlined priorities for 2022 which included supporting student loan borrowers, but not mass cancellation. Indeed, broad student loan forgiveness ultimately moves the burden onto the taxpayer, and without any changes to mitigate moral hazard or reduce college tuition inflation, simply kicks the can down the road.

Ultimately, President Biden has hesitated to drive an agenda that inspires people, and instead has fallen back to the default pre-Trump “business as usual”. I can say with confidence that he will not act to cancel student debt in the next 90 days.