UMass Boston Class Launch Ceremonies of 2021 and 2020Craig F. Walker / The Boston Globe via Getty Images

  • Student loan payments have been on hiatus for almost two years, with a recent extension to May 1.

  • There is controversy over the merits of wide relief, with some arguing it’s bad for the economy.

  • But experts told Insider it gives borrowers more financial flexibility, allowing them to seek better jobs.

It’s been almost two years since millions of borrowers like Gwen Carney were subjected to monthly student loan bills.

Carney, a 61-year-old single grandmother with $ 75,000 in student debt, told Insider the hiatus on federal student loan payments gave her an extra $ 200 a month in startup cash to throw a face mask to sew. Her sales helped her pay for food and utilities.

During this time, Carney was only one of the borrowers capable of paying off other forms of debt, paying for basic necessities and contributing to the economy. Her story shows the extra juice that the postponement – or, as some would say, the cancellation – of student debt can bring to people’s lives and to the economy as a whole. As the argument goes: less debt equals more economic freedom for the people and more vitality for the country.

The economy has been “more than good” during the hiatus in payments, Marshall Steinbaum, senior researcher at the Jain Family Institute and professor of economics at the University of Utah told Insider. Workers gained the financial flexibility to quit their jobs and pursue other opportunities, marking “a real shift in the way the economy has operated through the living memory of whoever is truly alive now.”

Steinbaum said those who oppose wide relief and new power for workers “want to return to a world where workers are fortunate enough to have even one job and will basically accept whatever they want. their bosses will give it to them, including the fact that they have to pay off their student loans. “

The break has already been extended 3 times

Former President Donald Trump first suspended student loan payments, with interest waived, in March 2020.

Since President Joe Biden took office, the hiatus has been extended three more times, the most recent on May 1 due to Omicron. Some advocates have argued that while the break can continue to be extended, there is no reason student debt cannot be completely written off. Plus, the extra $ 5 billion a month in Americans’ pockets, the Education Department says, could be a boon to the economy.

Following the recent extension, NAACP President Derrick Johnson wrote in a statement, “If you can afford to suspend student loan payments over and over again, you can afford to reverse it.” Progressive lawmakers like Massachusetts Senator Elizabeth Warren and Senate Majority Leader Chuck Schumer, who have proposed $ 50,000 of debt cancellation per borrower, have said the same.

Suspension of payments gave borrowers more economic freedom

In addition to the pause on student loan payments, millions of Americans participated in the Great Resignation by quitting their jobs in search of better opportunities.

Charlie Eaton, an economic sociologist and researcher at UC Merced and co-author of a Roosevelt Institute study analyzing the impacts of student debt cancellation, told Insider that “one of the hallmarks of the today’s economy “is the Great Resignation – and student recovery – loan repayments would prevent it.

Eaton’s study concluded that canceling $ 50,000 in student debt per borrower would grant more than $ 4,000 to households in lower-income groups – money that could boost the economy if not. used for monthly payments.

“If people are trying to re-enter the workforce, but you can’t get a home loan or a car loan, or can’t buy a car, it’s harder for people to find jobs than they are. ready to accept. take, ”Eaton said, referring to the decline in home ownership among those in debt. The National Association of Realtors recently found that over 51% of borrowers are delaying home buying because of their debt.

“There is no doubt” that the government can afford a large relief

As to the cost of general student loan relief, there is no consensus. The Committee for a Responsible Federal Budget wrote in an August report that the moratorium on student loans should end, saying it has cost the government $ 52 billion a year. He also pointed out that a blanket cancellation is poor economic stimulus. This would put $ 90 billion a year back into the economy, but cost the US government $ 1.5 trillion in outstanding loan repayments.

But in a 2018 Levy Economics Institute of Bard College article, co-authored by Steinbaum, he found that comprehensive debt cancellation could increase real gross domestic product by an average of $ 86 billion to $ 108 billion per year, resulting in lower unemployment levels which add about 1.2 million jobs each year.

“If we write off student debt, it really means the federal government is choosing not to collect payments from debtors on debt already issued,” Steinbaum said. “Can the federal government afford this cut in revenue of, say, $ 100 billion a year or something like that every year, indefinitely? I think there’s no doubt that the answer to that question is yes.”

Others disagree. Larry Summers, former Treasury Secretary to President Bill Clinton and senior economist under President Barack Obama, wrote on Twitter in December that the further extension of the payment break is “very problematic” – a view shared by economists and experts more to the right.

He said “there is no special case for widespread relief now,” citing a low unemployment rate – the rate fell to 4.2% from 4.6% in November – and added that the relief is regressive, which means that it will benefit the richer borrowers more.

Left-wing economists reject this argument, arguing that general relief would benefit low-income people more. The Roosevelt Institute cited the 61% of students with incomes of $ 30,000 and under who are in debt, compared to the 30% of students with income above $ 200,000. But to be clear, we don’t have the most concrete data on the effects of student loan relief – since, well, it hasn’t been.

Regardless of the actual impact that general relief will have on the economy, the payment hiatus has taken a heavy blow on the backs of borrowers. One of them previously told Insider that the lack of monthly student loan payments saved her $ 377 per month, which allowed her to fully pay the medical bills for having a baby.

“It’s basically a kind of ball and chain around the ankles of many who were lifted at the start of the pandemic,” said Steinbaum, professor of economics at the University of Utah. “And I suspect it had a major positive effect on their financial well-being and their purchasing power.”

Borrowers like Gwen Carney can attest to this – the suspension of payments gave them the relief they desperately needed. They just wish it wasn’t temporary.

Do you have a story to share on student debt? How has the break in payments affected you? Contact Ayelet Sheffey at

Read the original article on Business Insider