In the 2020 CARES Act, Congress gave student-loan borrowers a temporary break from repaying their loans. President Trump extended that twice and President Biden once, with loan payments now set to resume Oct. 1, 2021.
Borrowers could have kept paying if they wanted to, but almost nobody did.
- Let's turn to another big story and that of course, is student loans. A $1.7 trillion debt crisis that's facing so many Americans. And we know that debt relief-- we have seen at least a pause in payments, I should say, over the last several months because of COVID. But those payments are set to resume in just a few months from now in October. So we want to bring in Rick Newman for the latest on this. And Rick, I know you're looking into this story. But where do things stand today, just in terms of how many people have been making those student loan payments over the last several months?
RICK NEWMAN: Well, there was a short pause in those payments in the CARES Act, that was the first relief bill Congress passed in 2020. Then President Trump extended that deadline twice and Biden extended it again. So the deadline is now September 30 of this year. So that means for almost a year and a half if you had a student loan you were not required to make a payment. And big surprise, almost nobody is making a payment on their student loans, because they don't have to.
So before the pandemic about 47% of people with a federally-backed student loan were making payments and that has dropped to about 1%. The rest, everybody else, is in defer-- those loans are deferred, or some students are in school and they don't have to pay back yet, or some are in default. But it used to be that half of the people who had a loan were repaying it. And now, almost nobody is.
So there's a real interesting question about what is going to happen if these payments do resume in October. And of course, this happens at the same time-- there's pressure on President Biden to just cancel some of this student debt outright. That's really controversial. Economists actually think that's a terrible idea. Lots of questions about fairness. Including people, like me, who already paid off their student loans, is that fair to everybody else. So this is going to be really kind of a broiling issue into the fall.
- Who actually goes after those who are, might-- not deferred obviously, but who are in default? Is it the actual lender who's been backed by the US government? Who collects?
RICK NEWMAN: Well, these loans now, Adam, they are all government loans. They don't go through private lenders anymore. But what the government does when people are in default is they contract that out to collection services, so it's not going to be somebody from the education department who's calling you up or hectoring you to pay it back. It's going to be somebody from a private contractor.
But I'm not I'm not sure. Defaults are as much of a problem-- or that they're necessarily going to be worse of a problem than they were before. I mean, one thing to keep in mind is if you have a student debt that means you are either in college or graduate school, or you have a college degree or a graduate degree. And what economists point out is that if you have student debt, you're probably better off than the population at large and therefore more able to pay back something like this because chances are you have a degree.
Now, the worst group here that struggles the most are people who go to college for a little while, take on some debt, and then don't get the degree. So they have the debt without the qualification it was supposed to pay for. But many of these borrowers probably will be able to resume their payments. It's just a question of how smoothly this is going to go if it starts up--