Millions of Americans breathed a sigh of relief Monday night as Congress passed a $900 billion stimulus bill that includes $600 checks and expanded unemployment benefits. But the relief package doesn't address a financial crisis that's been building since long before the onset of the pandemic: student loan debt.
Beginning next month, tens of millions of student loan borrowers will be required to resume all payments after nearly a year-long forbearance. An extension to the grace period was included in early drafts of the bill, officially known as the Coronavirus Response And Relief Supplemental Appropriations Act, but was cut in final negotiations.
Student loan debt has been a looming catastrophe since before the pandemic, but widespread job losses and pay cuts, especially among millennials, have exacerbated the issue. This year student loan debt reached an all-time high, nearly $1.6 trillion among more than 40 million Americans, according to the Federal Reserve Bank of New York. On average, student loan borrowers owe between $200 and $299 every month, according to the Federal Reserve. For many, the debt is simply untenable; about one in every five borrowers are in default, according to the U.S. Department of Education.
In March, the Department of Education suspended all monthly federal loan payments, granting all borrowers an interest-free forbearance period through October. In August, an executive order from President Trump extended the program through December, and earlier this month education Secretary Betsy DeVos lengthened the grace period through January.
"The coronavirus pandemic has presented challenges for many students and borrowers, and this temporary pause in payments will help those who have been impacted," DeVos said in a December 4 statement when the extension was announced. "The added time also allows Congress to do its job and determine what measures it believes are necessary and appropriate. The Congress, not the Executive Branch, is in charge of student loan policy."
A Pew study from November found that nearly six in ten borrowers said it would be "somewhat" or "very difficult" to restart payments on their loans the next month.
It's still possible the popular forbearance program will be extended again after President-elect Joe Biden takes office on January 20. On the campaign trail Mr. Biden pledged to tackle the student loan crisis, including canceling $10,000 in debt for students who work in national or community service.
When student loan payments do resume, the Department of Education doesn't expect a smooth transition. In its 2020 annual report, the department said it expects loan servicers and the federal government will "face a heavy burden in 'converting' millions of borrowers to active repayment." Some of those borrowers, the report warns, will become delinquent.
First published on December 22, 2020 / 1:19 PM
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