Student debt: White House faces backlash for restarting interest on loans

The White House is facing backlash about its decision to reactivate interest for student loans as part of its “on-ramp” repayment program, which progressives and advocates argue isn’t enough to help struggling borrowers.

The program aims to help those who can’t repay their loans when payments resume this fall by removing the threat of default or harm to credit ratings for 12 months if bills aren’t paid. It’s one of the only routes the Biden administration argues it could have taken since ending the payment pause that ultimately became part of the debt limit deal President Biden struck with Speaker Kevin McCarthy (R-Calif.).

The so-called “Plan B” for providing student loan relief was laid out late last week hours after the Supreme Court struck down a program the White House attempted to implement that would have forgiven up to $20,000 in student loans dependent upon earnings. The alternative route aims to help borrowers make their journey to repayments easier.

But the president’s plan has failed to satisfy stakeholders and some Democratic lawmakers are panning the return of interest being accrued on for certain student loans for the first time since March 2020. 

“There is already so much confusion,” Natalia Abrams at Student Debt Crisis Center (SDCC) said.

---

Education coverage from The Hill

• Harvard faces civil rights complaint over its legacy admissions
• Biden plots new course to get relief for student loan borrowers
• Supreme Court blocks student loan forgiveness: What should borrowers do now?
• What will colleges do in wake of affirmative action ruling?

---

Borrowers are set to start repaying their student loans in October after interest begins accruing again in September. The president said that the on-ramp program would at least help alleviate some pressure on borrowers by not having their debt sent to collectors or credit scores impacted from October 2023 to September 2024.

The White House believes it has come up with the best option they could give borrowers, considering the debt agreement, which was signed into law in June.

“The law requires us to end the payment pause this summer. We believe in the rule of law, and plan to follow it,” a White House official told The Hill. 

The official added that the on-ramp program aims “to protect the most vulnerable borrowers.”

But the White House explanation has not been enough for advocates and even some Democrats.

“People should not be incurring interest during this 12-month on-ramp period. So, I highly urge the administration to consider suspending those interest payments,” Rep. Alexandria Ocasio-Cortez (D-N.Y.) said. 

Some note that ending the pause and restarting interest is part of the deal negotiated with McCarthy.

“The student loan pause suspended both monthly payments and interest for many borrowers since March of 2020. The debt ceiling deal negotiated by the White House spells an end to the pause,” said Debra Dixon, who served as chief of staff at the Office of Planning, Evaluation and Policy Development at the Education Department under former President Obama.

Rep. Alexandria Ocasio-Cortez (D-N.Y.) walks up the Capitol steps on Tuesday, June 6, 2023. (Tierney L. Cross)

She said the latest program softens the impact for borrowers who haven’t made a payment or accrued interest in the past three years, noting that was the best option the administration had after its first attempt was struck down.

“This softens the monthly payment part of the pause. If interest were also to be suspended during the grace period, then both elements of the pause would be back in place as if an end had never been negotiated. Softening the adjustment for borrowers as payments resume is the best the administration could do,” said Dixon, a principal at Ferox Strategies.

White House officials Friday made sure to stress that the on-ramp action is not an additional pause extension, as the Biden administration had been criticized by Republicans for continuing to extend the repayment pause until he struck the deal limit deal this spring.

But, Republicans are still criticizing the administration, despite the fact that interest is starting back up.

Education and the Workforce Committee Chairwoman Virginia Foxx (R-N.C.) and Senate Health, Education, Labor and Pensions Committee Ranking Member Bill Cassidy (R-La.) said the pause on consequences for missing payments is a “a violation of the debt ceiling agreement.” 

But, student loan advocates argue Biden is able to extend a pause and not violate the deal with McCarthy because they say the deal was specific to the president extending the pause under the Higher Education Relief Opportunities for Students (HEROES) Act.

“The agreement was that while it codified ending the payment pause, it didn’t give the president explicit directions as far as who to collect the debt from and how much he collected and so there is some room there for the president to shape the restarting of payments,” Cody Hounanian, executive director at the SDCC, said. 

House Education and Workforce Committee Chairwoman Virginia Foxx (R-N.C.) poses for a photo following a press event to highlight the introduction of the “Parents Bill of Rights” on Wednesday, March 1, 2023. (Annabelle Gordon)

The administration also saw pushback on its new student debt relief plan, which uses the Higher Education Act as opposed to the HEROES Act to try to forgive loans. 

The process will take months to complete as the proposal needs to go through a “negotiated rulemaking” process, so details about how much borrowers could receive or who will qualify will not be available for some time.

Democrats have been quiet regarding concerns with the new debt relief plan, but student loan advocates have not. 

Hounanian said advocates are concerned about the amount of time it will take for the program to be implemented while, he argued, the president had other options at his disposal.

“According to some of the legal experts we work with, [Biden] has the option to do a preliminary rule that would allow them to start canceling the debt for folks who had their applications approved while they create a final rule through this process,” Hounanian said. 

“There are actually several options available to the administration including allowing for a much faster rollout. It is not a binary option,” he added.

Updated 7/6 12:14 p.m.