'We are facing a student loan time bomb,' Senator Warren says amid $50,000 forgiveness push
With the U.S. student loan payment pause set to end after September, Senator Elizabeth Warren (D-MA) continues to push for student loan forgiveness as a remedy to a potentially disastrous scenario.
If the payment pause is lifted without cancellation in October, "we are facing a student loan time bomb that when it explodes could throw millions of families over a financial cliff," Warren said during a town hall hosted by the American Federation of Teachers on Tuesday night.
"The average borrower is going to have to start repaying nearly $400 a month to the government, instead of spending that money in our economy," she added. "Student borrowers are at risk of being thrown into an extraordinary financial hardship. When the pause on student loan payments interest ends on September 30, people aren’t going to know how much they owe. They’re going to miss deadlines suddenly. They’re going to be delinquent. They’re going to owe penalties on this."
Federally-backed student loan payments have been paused since March 2020, and President Biden extended the pause through to at least September 30 upon taking office.
'The time is now'
Student loan balances increased by $29 billion to $1.58 trillion in the first quarter, according to the New York Fed.
At the same time, only 6.2% of student loans were in serious delinquency or default in the first quarter of 2021 due to the payment pause and debt collection moratorium.
That stunning drop could be reversed, Warren argued, if payments were restarted without sufficient borrower education and widespread cancellation.
"So the time is now, let’s get this resolved right now," Warren said. "We need to cancel $50,000 of debt today that will wipe out all of the student loan debt for 84% of the people out there, and then we can concentrate on the remaining 16%. We need to do it now before there’s a spike in defaults once these loans are turned back. So, that’s part of the reason the urgency of this moment."
The Washington Post reported last week that White House officials are not including student debt cancellation in their upcoming budget proposal.
In March, White House Chief of Staff Ron Klain told Politico that President Biden had asked Education Secretary Miguel Cardona to compile a memo on whether the president has the legal authority to forgive $50,000 in student loan debt through executive order. The Education Department has not responded to requests for comment on the memo.
"Canceling $50,000 in student loan debt would be the single most effective executive action that President Biden could take to provide massive consumer-driven stimulus for our economy and to advance real racial justice throughout our nation," Warren said. "Data from the Department of Education reveals that if we canceled $50,000 of student loan debt, 84% of borrowers — that's 36 million people — would have their student loans completely wiped out."
Aarthi is a reporter for Yahoo Finance. Follow her on Twitter @aarthiswami.
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