Millions of Americans with federal student loans have been making payments again. Given the huge scale of student loan debt in the US — more than 40 million people collectively owe more than $1.6 trillion — there are concerns that discretionary consumer spending will take a hit. The issue is sure to play a role in the 2024 political campaign season, as many young voters fault Republicans and a conservative-majority Supreme Court for stymieing attempts by President Joe Biden, a Democrat, to ease the debt burden. Biden, for his part, has invoked his executive authority to forgive some loans despite the Supreme Court ruling. The rising cost of college and graduate school, too, means that student debt is a problem that’s not going away.

1. Why did payments resume?
Payments were halted by President Donald Trump in March 2020 as Covid lockdowns began in the US. The freeze also temporarily gave borrowers a 0% interest rate on their loans. The moratorium was extended multiple times. But then last year, Biden and then-House Speaker Kevin McCarthy, a Republican, agreed to a plan to raise the nation’s debt limit and avoid a government shutdown. That deal included a provision that prohibited the Education Department from authorizing another extension after the latest one expired. Interest accruals resumed on Sept. 1, and bills began coming due in October.

2. What role did the Supreme Court play?
In 2023, the Supreme Court blocked a separate initiative by the Biden administration that would have forgiven as much as $20,000 in debt per borrower, after six Republican-led states challenged the plan as exceeding the president’s authority. The court’s conservative majority ruled that Biden couldn’t use the so-called HEROES Act — a 2001 law that allows the education secretary to “waive or modify” student loan requirements — to forgive student debt. Biden said after the court’s ruling that he would try a different legal avenue to provide debt relief, invoking his authority under the Higher Education Act of 1965 to provide financial assistance for college students, though the Education Department hasn’t said how that might play out.

3. Why are some people still getting their loans forgiven?
Roughly 3.9 million Americans, or less than 10% of borrowers, have received some form of loan forgiveness in the last year despite the Supreme Court’s rejection of Biden’s sweeping student-loan plan. These accounts should have already qualified for relief on the strength of programs designed to help low-income, disabled and public-sector workers, the Biden administration said. The programs had failed to provide that relief — which so far has amounted to $138 billion — because of administrative problems, it said. That number could grow as more people become eligible for forgiveness under the Saving on a Valuable Education (SAVE) program, which lets qualifying borrowers set payment amounts based on their income and family size, rather than their loan balance. The program has enrolled 6.9 million people. Administration officials have declined to estimate how many borrowers will eventually see loans forgiven under the program.

4. What are the arguments for and against student debt forgiveness?
Some critics of Biden’s original plan said it would be unfair to those who had already paid back student loans or who worked their way through college to avoid debt. Some progressive activists, like Senator Elizabeth Warren of Massachusetts, said that Biden’s plan didn’t go far enough. She called for forgiving as much as $50,000 in loans, while others pressed for deeper relief for targeted groups, like borrowers who didn’t finish their degrees. And people on all sides of the issue pointed out that forgiving debt would do nothing to alter the economics of education that produced the borrowing in the first place — the price tag for higher education that keeps rising faster than the rate of inflation.

5. How is the resumption of interest and payments affecting borrowers?
Interest began accruing again for most borrowers in September. Since then, consumers have allocated around $34 billion toward paying their student loans. That money has to come from somewhere. Although some retailers had warned that the resumption of payments might affect their businesses, clear evidence hasn’t emerged. A Philadelphia Fed report in February found that the “return to repayment has incrementally affected borrowers.”

6. What happens now?
To help those struggling to restart payments, the Biden administration added a 12-month “on-ramp” through September 2024. Borrowers who miss monthly payments during this period aren’t considered delinquent, reported to credit bureaus, placed in default or referred to debt collection agencies.

This article was provided by Bloomberg News.