DANIEL VAUGHAN: The student loan political football returns to haunt Democrats

The pandemic has brought a lot of disruption to Americans’ lives. As a person living in a red state, it can be weird to see friends or work colleagues in blue or purple states talking about “getting back to normal,” when normal has been a state of fact for people like me since vaccines became available. But one key aspect has been true for everyone: the US government paused student loan repayment for federal loans in the spring of 2020. That soon could change.

A recent CNBC poll tells the story: “Americans believe it’s more likely that some, or all, of student debt gets forgiven than that bills will resume in three months, according to a CNBC + Acorns Invest In You Student Loan Survey. Just 29% of respondents ranked student loans resuming in the spring as the most probable outcome. More than a quarter think the likelier situation is that the pause is prolonged beyond May, while 14% of people anticipate full loan forgiveness and another 28% expect some cancellation.”

It shouldn’t be surprising that Americans hold this attitude. Once we get to May, when repayments are supposed to start again, it will have been two years since any American was required to make a payment on a federal loan. The can continues to get kicked down the road.

The Trump administration’s decision to pause repayments made sense at the time. The federal government wanted a shutdown of the economy for a brief period, which prevented many people from working. If you can’t work, you can’t make a loan payment. That wasn’t the loan repayers’ fault; it was the federal government.

But now, it’s up to the Biden administration to decide when to bring repayments back. And with progressives hot on the Biden administration to provide debt forgiveness of some kind on student loans, Biden faces a challenging political choice. Bringing student loan repayments back will make him even less popular, especially when Americans suffer from red-hot inflation, which the White House is doing nothing to solve.

Any story from the last two years that talks about the increased spending power of the US consumer must take into account the fact that Americans have been able to use money earmarked for repayments for other functions. And now, the federal government wants to return things to normal after freezing every loan in place for two years.

That CNBC report said, “Even before the coronavirus pandemic, the country’s outstanding student loan debt balance exceeded $1.7 trillion and posed a larger burden to households than credit card or auto debt. Roughly a quarter of borrowers, or 10 million people, were estimated to be in delinquency or default.”

If the Biden administration goes ahead and turns repayments back on, those delinquencies are then live in an inflationary environment where the American consumer is already losing chunks of paychecks to inflation. In short, it will be another economic point that Americans will blame Biden for allowing. That’s partially why people are banking repayments getting extended again.

People could have understood resuming things in 2021, but with inflation potentially peaking? That’s a hard pill to swallow for anyone.

Where things head after that is anyone’s guess, Biden will have pressure to allow some form of student loan forgiveness. Republicans have a lot of leverage in this situation because Congress is so evenly divided. Politically, the most likely scenario is that Republicans sit idly by and let Biden eat the repayment schedule.

There is an alternative, however. Republicans could use the leverage and pain here from Democrats to find ways to reduce the power and money of universities. Too much federal appropriation is funding the bureaucracies of universities, both public and private, and reducing that would go a long way towards draining the influence of the various woke forces in the country. If they can’t get funding, it’s hard to justify their existence.

Public funding of education has brought many benefits with it. But the excesses allowed in public education at the moment bring with it all the stupidity we’re experiencing, from woke capitalism to fights over school curriculum. Congressional Republicans have a rare opportunity here to try and negotiate some wins over public education when Democrats are feeling the heat and pressure of student loans.

Another possibility is that Biden decides to continue kicking the repayment schedule down the road until Republicans likely control power after the midterms in a bid to stick the politics of repayment on the GOP. Whatever the end decision is, student loans are one of the hottest potatoes jumping around in domestic politics. The fact that no one has had to pay anything on them for two years makes the politics around it even more interesting.

The clock is ticking on what can happen with student loans. The politics will matter just as much as the economic realities.