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Wealthier borrowers benefited most from student loan payment pause

Wealthier Americans were most likely to benefit from the pandemic-era pause in student loan payments, a report found.
Wealthier borrowers benefited most from student loan payment pause
Posted at 12:29 PM, Apr 25, 2023

A report from the Brookings Institute indicates that wealthier federal student loan borrowers were more likely to benefit from the pause in mandatory payments during the pandemic. 

The report released earlier this month gave some indication of who gained the most from the over three-year pause in federal student loan payments. The Brookings Institute estimates that the total cost of the pause in payments is $195 billion.

In March 2020, the Trump administration placed a pause on mandatory federal student loan payments due to COVID-19. The Biden administration continued the pause. Payments were slated to resume in January, but the Biden administration extended the pause amid uncertainty over its debt forgiveness program. 

The Brookings Institute’s data showed that households in the top 40% of the income distribution would account for 60% of student loan payments. Meanwhile, the bottom 20% only accounts for 5% of payments. 

Some of this could be driven by the fact that those with higher levels of educational attainment tend to make more. Census data shows the median income for households whose head of household has a four-year degree was $115,456 as of 2021. For householders with a high school diploma and no college experience, that amount was $50,401.

SEE MORE: SoFi sues to block Biden's student loan repayment pause

"The payment pause especially benefits high-income households because they tend to have larger student loan balances — and therefore higher payments," the Brookings Institute wrote. "This is particularly true when interest rates are relatively high because borrowers can accrue interest on savings that would have otherwise been spent on loan payments, while future payments are fixed in nominal dollars. Borrowers who earned graduate or professional degrees tend to have both higher loan balances (because they borrow more than undergraduates) and higher incomes (because many graduate degrees have high returns) than those with a bachelor's degree or less."

The Brookings Institute noted that the pause in student loan payments was considered more regressive than plans to forgive student debt. That is because there are certain limits on who is eligible for debt forgiveness.

President Joe Biden's plan calls for borrowers with incomes of up to $125,000 to receive up to $10,000 in federal student loan forgiveness. That amount increases to $20,000 for borrowers who received Pell grants.

The future of that plan, however, remains in question as the Supreme Court will decide on whether President Biden has the authority to wipe away student debt. 

In the meantime, federal student loan payments remain on pause until at least June, pending the Supreme Court’s decision.

When payments do resume, the Brookings Institute said millions will likely be unprepared to make payments. 

"Regardless of one’s view on the merits of Biden's loan cancellation plan, it is dangerous to ignore the substantial likelihood that judicial rulings will end the payment pause, strike down cancellation, or both. Failing to prepare at-risk borrowers for these outcomes is irresponsible and may inflict more harm on those who have already spent years struggling with burdensome student debt," the report said. 


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