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Debt ceiling deal: Opposition grows to ending student loan relief

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Debt ceiling deal: Opposition grows to ending student loan relief

US House Speaker Kevin McCarthy, a Republican from California, arrives to the US Capitol in Washington, DC, on Wednesday, May 31, 2023.

Sarah Silbiger | Bloomberg | Getty Images

The measure in the debt ceiling deal terminating the pause on federal student loans is generating concern among advocates, progressives and borrowers.

Advocates warn that the provision ending the stay on bills by September could trigger devastating financial consequences for millions of Americans, especially if the Supreme Court strikes down President Joe Biden’s student loan forgiveness plan.

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Since March 2020, the U.S. Department of Education has allowed most people with federal student loans not to make payments on their debt without interest accruing. The bulk of borrowers took advantage of the opportunity.

“The pause on student loan payments remains one of the most durably popular pieces of economic policy because the American people recognize what Washington has long struggled to understand: The student loan system is broken,” said Mike Pierce, executive director of the Student Borrower Protection Center.

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Roughly 60% of voters want the pause on student loan bills to be extended if Biden‘s sweeping forgiveness plan is blocked by the U.S. Supreme Court, a new poll finds. A decision by the justices is expected in June or July.

The Biden administration has warned that resuming student loan payments without being able to carry out its debt forgiveness plan could trigger a historic spike in defaults and delinquencies because of the economic troubles wrought by the pandemic and borrower confusion over what they owe.

Under deal, pause will ‘cease to be effective’

According to the legislative text of the proposed agreement to raise the debt ceiling, the pause on federal student loan payments will “cease to be effective” and borrowers will be required to resume paying their bills 60 days after June 30. Their first due date will likely be in September, experts said.

Rep. Ayanna Pressley, D-Mass., filed an amendment Tuesday that would strike the provision ending the pause. Her proposed amendment was not included in the final bill.

“Republicans continue to play games with our economy, with disregard for our most vulnerable families,” Pressley said in a statement.

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White House spokesman Abdullah Hasan defended the president’s negotiations on behalf of borrowers, pointing out that the administration had planned to end the pause this summer anyway.

“This agreement makes no changes to that plan,” Hasan said.

Congressional control idea worries advocates

As part of the deal, the U.S. Department of Education would also be restricted in its ability to extend this particular relief again, with another prolongment likely only possible from Congress. The department has been able to extend the pause on its own several times throughout the public health crisis.

It is that provision that especially worries consumer advocates, given the uncertain outcome of Biden’s forgiveness plan.

“This deal takes away the White House’s ability to extend the current payment pause if the Supreme Court kills the relief, making it more likely 40 million people will have to repay loans that the president promised were canceled,” said Astra Taylor, co-founder of the Debt Collective, a union of debtors.

Shortly after the president rolled out his plan to forgive up to $20,000 in student debt for millions of borrowers, Republicans and conservatives brought a number of legal challenges to the plan and two of those lawsuits made it to the highest court.

The justices are likely to strike down the policy, experts say, given their conservative majority.

This deal takes away the White House’s ability to extend the current payment pause if the Supreme Court kills the relief.

Astra Taylor

co-founder of the Debt Collective

In exchange for voting to raise the nation’s debt ceiling, Republicans demanded large cuts to federal spending.

As part of negotiations, they also sought to repeal Biden’s executive action granting student loan forgiveness. But the Biden administration refused to agree to that, and the ongoing legal battle over the plan made any legislation potentially moot.

Correction: Rep. Ayanna Pressley, D-Mass., filed an amendment Tuesday that would strike the debt ceiling deal provision ending the pause on student loan payments. An earlier version misstated the day.

This is a developing story. Please check back for updates.

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