The student-loan payment pause is 'troubling' and could lead to the 'massive mistake' of broad debt forgiveness, a top House Republican says

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Rep. Virginia Foxx
Rep. Virginia FoxxBill Clark/CQ-Roll Call, Inc via Getty Image
  • Biden recently extended the pause on student-loan payments a third time, through May 1.

  • GOP Rep. Virginia Foxx said doing so was "troubling" and broad student-loan relief would be "a massive mistake."

  • Republican and Democratic lawmakers disagree on the impact broad relief would have for borrowers and the economy.

President Joe Biden recently extended the pause on student-loan payments for the third time, and a leading Republican lawmaker isn't happy about it.

North Carolina Rep. Virginia Foxx — the top Republican on the Committee on Education and Labor — released a statement on Thursday following a roundtable discussion with stakeholders on "the importance of restarting federal student loan repayments," according to a press release.

She cited the $150 billion cost to taxpayers that accompanied Biden's additional extension of the payment pause and said the president is acting to "satisfy the progressive wing of the Democrat party—this political theater is unacceptable."

After a nearly two-year-long pause on federal student-debt payments, Biden cited uncertainty with the omicron variant as the primary reason to delay repayments until May 1 for the 43 million Americans who owe the federal government. Many Democrats, however, want more: Broad student-loan forgiveness, which some say would stimulate the economy. But Republican lawmakers do not support this type of broad relief because of the cost to taxpayers in the form of lost revenue from loan repayments. Either way, everyone wants a plan, but Biden has been largely silent about it.

"The Biden administration owes Congress and the American people a plan that will address challenges facing student loan servicing companies and borrower confusion, and provide a clear timeline for when student loan payments will resume," Foxx said.

"President Biden's latest extension is a troubling trend toward blanket student loan forgiveness, which would be a massive mistake, with major consequences for borrowers and taxpayers," she added.

Democrats can agree with Foxx's message on providing borrowers certainty surrounding student-loan payments. Prior to extending the pause on December 22, borrowers were still waiting for details from the Education Department regarding plans to ensure a smooth transition back into repayment, and some Democratic lawmakers and advocates stressed the need for prompt and accurate information regarding that transition.

But when it comes to the "blanket student loan forgiveness" Foxx mentioned, that's where opinions split. Foxx recently joined three of her Republican colleagues in asking the Education Department for "forthcoming and timely" records pertaining to the cost of the federal student-loan portfolio.

If a borrower defaults on their debt, not only would the government miss out on those payments — the borrower would face wage garnishment and be stripped of federal benefits for falling behind. Foxx and her colleagues wanted to know how the government is protecting taxpayers from fronting those big bills, and they believe government losses from broad student-loan forgiveness would add to the issue.

Democratic lawmakers believe otherwise. Massachusetts Sen. Elizabeth Warren, one of the leaders of the $50,000 student-debt forgiveness proposal, told Insider last year broad relief would be an economic stimulus.

"America has a consumer-driven economy," she said. "Knocking tens of millions of people out of being able to participate in that economy, taking money out of their pockets — money that they spend in local stores and money they spend to keep this economy going — is not helpful."

And Marshall Steinbaum, senior fellow at the Jain Family Institute and economics professor at the University of Utah, agreed with Warren.

"If we cancel student debt, what that really means is the federal government is choosing not to collect payments from debtors on the debt that's already issued," Steinbaum previously told Insider. "Can the federal government afford that reduction in revenue of, say, $100 billion a year or some number like that every year, indefinitely? I think there's no doubt the answer to that question is yes."

There's no clear answer how broad student-debt forgiveness will impact the economy and taxpayers since Biden has not acted on that yet, but for now, Biden said borrowers should except to resume paying off their debt in three months and Foxx wants to ensure that's final.

Read the original article on Business Insider