Student-loan payments and interest were frozen for over three years in order to provide ‘temporary’ relief.
We’re seeing another sign of the permanent shift caused by the pandemic payment freeze.
B ack in 2021, Brad Polumbo and I wrote a piece for National Review lamenting that Covid policies seemed to be fulfilling Milton Friedman’s maxim: “Nothing is so permanent as a temporary government program.”
Some criticized that article by arguing that, since the pandemic was still going on, pandemic policies should be expected to continue. However, the basis for this criticism quickly fell apart. Take one of the major policies passed under the Trump administration in March 2020, the student-loan-payment freeze. This was passed to aid those with student loans negatively affected by the pandemic and, in particular, those who had lost their jobs as a result of the pandemic lockdowns.
However, the freeze outlasted both the “pandemic phase” of Covid and the lockdowns. In 2021, I wrote about the continued freeze on payments and argued that these freezes, because they also prevented interest accrual, were tantamount to student-loan forgiveness totaling around $3,000 per borrower on average. That number certainly increased, since student-loan payments didn’t resume until October 2023.
You read that right. Student-loan payments and interest were frozen for over three years in order to provide “temporary” relief.
It’s safe to say that Brad and I were right in applying the spirit of Friedman’s maxim to that particular Covid-era policy. But could it be argued that, ultimately, our application of Friedman’s rule was proven wrong? After all, student loan freezes eventually ended. So, apart from the holiday on interest accrual, it wasn’t a permanent change, right? Wrong.
The first sign that the pandemic has permanently changed student-loan repayment was the introduction of Biden’s Saving on a Valuable Education (SAVE) plan, which I wrote about in 2023. In this article, I called the SAVE Plan a form of “shadow forgiveness.” Why? See for yourself:
Under the new guidelines by the Department of Education, someone making 225% of the federal poverty rate will now have their income completely protected from payments according to Fox Business. That means borrowers earning $32,805 or a family of four with income of $67,500 will be required to make payments of $0. . . .
The administration is capping interest rates to make sure loan balances don’t grow. So how much do we expect someone to pay on a student loan with a required payment of $0 and no interest accumulation [above what is covered by the monthly payments]? It’s not hard to see that this is just shadow forgiveness.
It doesn’t end here either. IDR [income-driven repayment] plans already offered loan forgiveness to borrowers who made payments for 20–25 years. So borrowers who have a small payment under Biden’s new SAVE Plan will see their balances disappear eventually based on already existing rules.
Part of the initial justification for the SAVE plan was that it provided an easy on-ramp to repayment for borrowers experiencing the hardship of paying their financial obligation when the freeze ended. Temporary policies led to permanent changes.
And, although the Supreme Court struck down Biden’s outright forgiveness, the forgiveness offered by the SAVE plan is much larger for some borrowers depending upon the particulars.
But why mention this now? Well, we’re seeing another sign of the permanent shift caused by the pandemic payment freeze. Just this month, Biden’s Department of Education froze loan payments for millions of borrowers while the department continues to recalculate their payments to be only 5 percent of their income. This is down from 10 percent.
That’s right, the generous SAVE plan just got even more generous, which means that the future taxpayer will be responsible for picking up the slack of higher tax payments when interest income falls.
Why do the payments need to be frozen while the recalculation is processed? Why not have all borrowers make their payments up until the new payment amounts are calculated? Because temporary Covid policies instituted during the Trump administration have become the permanent norm for the Department of Education.
A cynical assessment of this sort of policy is that it reeks of vote-buying, as a GOP governor recently accused Biden of doing. Whether Biden’s Education Department is intentionally freezing and easing payments as November approaches, we’ll likely never know. Proving intent is next to impossible.
But what we can say is what Brad and I said nearly three years ago, and what Friedman decades ago: Nothing is so permanent as a temporary government program. It seems like student-loan freezes and forgiveness are here to stay.