Student-loan borrowers didn't get a say in President Joe Biden's first plan to cancel their debt. But they do now.
On June 30, the Supreme Court struck down Biden's plan to cancel up to $20,000 in student debt for federal borrowers. By a 6-3 ruling, the high court decided that the law the president used to enact the broad debt relief — the HEROES Act of 2003 — was an overreach of authority and cannot be used to wipe out loans for millions of Americans.
But shortly after the ruling, Biden and his Education Department announced they will be trying again to cancel student debt using the Higher Education Act of 1965, which states that the department can "enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand" related to federal student debt. As opposed to the HEROES Act of 2003, the Higher Education Act requires the administration to go through the negotiated rulemaking process, in which it is required to solicit public comment and hold hearings to construct its new relief proposal.
"Like I said, we have to do these public hearings," Bharat Ramamurti, deputy director of the National Economic Council, said during a June press briefing. "There has to be a certain amount of preparation to do the public hearings. You have to intake the comments that you get from the public, and then you have to decide whether to change your proposal accordingly before you do the next public hearing."
And if a student-loan borrower wants to tell Biden what they want to see in his new proposal, they have just three days left to do so. Anyone can submit a comment on the federal register through July 20 regarding anything they want the department to consider related to its new debt relief plan. So far, over 9,000 people have commented, with a batch of commenters saying that "it is essential that debt relief provides at least up to $20,000 per borrower and that it is available to everyone who has federal student loans. Families are depending on the relief already proposed: over 26 million people have applied and 16 million have been approved."
Along with the opportunity to submit public comments, the Education Department is holding the first public hearing on the new debt relief plan on Tuesday. Those who wish to tune into the hearing can register here. Following the public hearing, the department will announce the dates for negotiations with committees made up of various stakeholders formed after the hearings, and it anticipates holding three sessions at "roughly 4-week intervals," according to the federal register.
While the negotiated rulemaking process plays out, the department has made clear that payments are still resuming in October, with interest beginning to accrue again in September. To give borrowers some relief, there will be an "on-ramp" period for a year following the payment restart during which borrowers who miss payments will not be reported to credit agencies, but interest will still accrue during that time.
The department will also implement its new income-driven repayment plan, and on Friday, it announced that over 800,000 borrowers will have some or all of their loans forgiven due to a one-time account adjustment, "holding up the bargain we offered borrowers who have completed decades of repayment," Under Secretary of Education James Kvaal said in a statement.
Taken together, the data helps explain the big mystery behind how the U.S. economy has managed to avoid a recession that many economists had forecast: Consumers, supported by a strong labor market, have been able to keep spending despite inflation and a sharp rise in borrowing costs.
But it also highlights why Americans remain tentative about their economic prospects, particularly as they face higher prices on food, housing, and travel. Many have been working through their savings and say their bank account balances are on a downhill trajectory, with little prospect of building them back up to where they were a year or two ago.
“Obviously there was a huge public health event and unprecedented federal response that landed a lot of money in people’s bank accounts,” said Chris Wheat, president of the JPMorgan Chase Institute, a think tank within the country’s largest bank. “From the perspective of an individual household, 2020 is getting farther in the rearview mirror, but you still remember what it was like to have a bigger balance. That feeling of ‘I have less’ has certainly intensified, in part because of inflation.”
The U.S. economy continues to defy the experts. Even as policymakers hiked interest rates, cooling down many sectors and triggering layoffs across housing, finance, and tech, a resilient job market and healthy spending by households and businesses have worked to lift growth beyond what economists had expected at the start of the year.
Americans are far more optimistic, after more than a year of feeling particularly downbeat about inflation and giving the Biden administration low marks for its handling of the economy. Consumer sentiment spiked in July to its highest level in more than a year and a half, according to a closely-watched metric from the University of Michigan.
“Consumers have absolutely noticed that inflation has slowed down,” said Joanne Hsu, director and chief economist of the University of Michigan Surveys of Consumers. “The labor market is still strong, incomes are high, and that’s helped support robust consumer spending.”
For many Americans, that means bank accounts are more flush than usual. Tony Oxx, a manager at a transportation company in Louisville, has nearly tripled his savings since the pandemic took hold. He’s gotten two raises in that period and his overall pay, including commission and bonuses, has jumped more than 50 percent.
“I’ve been able to really rake it in,” Oxx, 39, said, adding that he recently upped his 401(k) retirement contributions to 15 percent from 3 percent of his salary. “As far as inflation, I’ve seen some price increases but nothing that hurt too bad. I’m saving a substantial portion — about 25 percent — of what I take home.”
He’s also splurging more. Oxx and his girlfriend just returned from a week-long vacation in Cancún, and he recently paid for an all-inclusive cruise for their parents.
“I’ve never made this much money before,” he said. “This is the first time I’ve been able to pay for my mom to take a whole vacation.”
Although inflation has often overshadowed pay increases in the past year, that’s beginning to change: Earnings have grown faster than inflation for four straight months. Overall, average hourly wages are up 4.4 percent in the past year, compared with a 3 percent increase in prices in the same period, according to data from the Bureau of Labor Statistics.
Nikki Cimino, 40, a public-sector recruiter near Denver, has been steadily working through her savings during the pandemic. Between a divorce and a hurried condo purchase after being priced out of her rental, she said the last three years have led to a pile of large expenses.
But this month, Cimino got a substantial raise. Her salary, at $65,000, is 30 percent higher than it was before the pandemic. She finally has a financial cushion and is traveling next month, to Myrtle Beach, S.C., with friends.
“It feels life-changing,” she said. “I can actually go on vacation without having to watch every single penny coming out of my checking account.”
The whirlwind events of the past three years — global pandemic, massive government stimulus, and decades-high inflation — have had a discernible impact on Americans’ finances. Many bank accounts ballooned early in the pandemic, when people were stuck at home and received stimulus checks, then receded quickly as inflation and “revenge” spending on vacations, dining out and other services, took their toll.
But researchers say households are beginning to settle back into pre-pandemic spending and saving patterns. In the decade between the Great Recession and the pandemic, bank accounts were “very consistent,” said Wheat of the JPMorgan Chase Institute. “There was a lot of stability — and that’s the pattern we’re starting to see again.”
The highest-income households had about 27 days’ worth of extra cash in their accounts in the decade before the pandemic. That cushion spiked to 43 days in 2021 but has since settled at 35 days, according to JPMorgan Chase Institute data through March 2023. It’s a similar trend across the economy, though the lowest-income households had a substantially smaller buffer: about 13 days before the pandemic, 22 days at the height of stimulus, and 16 days now.
Although the basic trajectory — a run-up in balances, followed by steady declines — holds across income groups and races, wide inequities have persisted and in some cases, worsened.
Black and Hispanic households saw the biggest jumps in savings and checking accounts early in the pandemic, as government stimulus money, child tax credit payments, and extra unemployment benefits helped lift balances by 96 percent between January 2020 and April 2021, according to JPMorgan Chase Institute data. That’s compared with an increase of about 75 percent for White and Asian households.
Although temporary federal programs helped narrow a long-standing racial gap, those gains have since been wiped out. Black and Hispanic households spent down pandemic-era gains at a faster pace than their White and Asian counterparts, “leaving a larger range separating racial groups as of the end of 2022 compared to the average over the 2010s,” researchers found.
“If there had been any closing of a liquid wealth gap in the 12 to 18 months at the beginning of the pandemic, it seems to have largely gone away,” Wheat said.
Economists warn that racial and income inequities could worsen if the economy turns. The Black unemployment rate — which fell to an all-time low in April — rose last month, even as overall joblessness fell. And there are signs that a cooling labor market is leading to reduced hours, particularly in low-paying service jobs. The number of people working part-time for reasons beyond their control rose by 452,000 in June, the biggest jump in more than three years.
Amber Brandon, 24, a cashier in Charlotte, was feeling good about her finances, until recently. She was making $15.60 an hour and was able to save $100 to $200 each week.
But the wholesale grocery chain, where she works, has begun slashing workers’ hours, which means Brandon’s schedule has gone from 24 hours a week to as few as eight. She’s having to dip into her savings to cover basics and has stopped shopping for clothes, snacks, and other small luxuries.
“My paycheck’s gone from $500 to $120 a week,” said Brandon, who lives with her parents. “I was trying to get back to school, trying to finish up my college degree, but I’ve had to put that on hold. I’m still hopeful, but things definitely feel different.”