CFPB: Biden Student Loan Forgiveness Plan Would Have Ripple Effect
Agency brief highlights potential positive impact on borrowers struggling with additional debt payments.
The Biden Administration’s student loan forgiveness program could have a beneficial ripple effect on people having trouble making payments on other debts, such as auto loans, the CFPB said in a new research brief.
“That is, many of the student loan borrowers who are currently struggling with repayment on other debts might no longer have student loan debt to repay when the payment suspension ends,” the bureau stated.
The administration has announced a plan to provide up to $20,000 in debt relief for many students who also received Pell Grants and who earn less than $125,000 individually or $250,000 for households. The plan would further provide up to $10,000 in debt relief for other borrowers with federal student loans.
The program is on hold since several lawsuits have been filed against the administration challenging the initiative.
Inside the Brief
In its research brief, the CFPB used its Consumer Credit Panel, a sample of credit records from one of the nation’s consumer credit reporting agencies. It also should be pointed out that the CFPB is led by Director Rohit Chopra, a Biden Administration nominee.
The agency said in the brief that the share of student loan borrowers with delinquencies on other debts has increased, and that student loan borrowers face higher monthly payments on non-student loans. The CFPB had reported earlier this year that, as of February, 39% of student loan borrowers had scheduled monthly payments for all credit products that had increased at least 10% since the start of the pandemic. As of September, that figure had increased to 46%.
“While these higher payments may be manageable for borrowers who have seen their incomes grow over the pandemic, others may be falling behind,” the CFPB said.
Pushback from Attorneys General
However, implementation of the loan forgiveness program has been on hold, after several lawsuits were filed, including one by a group of Republican state attorneys general.
“In addition to being economically unwise and downright unfair, the Biden Administration’s Mass Debt Cancellation is yet another example in a long line of unlawful regulatory actions,” the attorneys general wrote, in their lawsuit, filed in Missouri federal court in September. “No statute permits President Biden to unilaterally relieve millions of individuals from their obligation to pay loans they voluntarily assumed.”
A federal judge dismissed that lawsuit, but the attorneys general are appealing the decision.