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"This is ugly. And it is only going to get worse," warned one advocate.
The Consumer Financial Protection Bureau warned Wednesday that millions of federal student loan borrowers in the U.S. could struggle to make payments once forbearance ends in late August—a timeline codified by the debt ceiling measure that President Joe Biden signed into law over the weekend.
The consumer agency, also known as the CFPB, has been tracking the finances of student loan borrowers throughout the coronavirus pandemic, during which repayments and interest have been frozen—collectively saving borrowers hundreds of billions of dollars.
But in an update on Wednesday, the CFPB estimated that more than one in 13 borrowers are behind on payments other than their student loans, financial pain that will intensify once the student loan payment pause lifts.
"These delinquencies are higher than they were before the pandemic, despite a small seasonal decrease in the most recent data," wrote CFPB economists Thomas Conkling and Christa Gibbs.
The pair also found that roughly one in five of the 32 million federal student loan borrowers in the CFPB's sample "have risk factors that suggest they could struggle when scheduled payments resume," such as "pre-pandemic payment assistance on student loans" and "delinquencies on other credit products since the start of the pandemic."
"As of March 2023, around 2.5 million student loan borrowers had a delinquency on a non-student loan, an increase of around 200,000 borrowers since September 2022," the CFPB economists wrote. "Borrowers with large balances relative to their income may find their scheduled monthly student loan payments especially difficult to manage if they are not enrolled in income-driven repayment (IDR) plans when the payment pause ends."
Conkling and Gibbs also point to other factors that could complicate the repayment process for many borrowers, including the large number of loan accounts that have been transferred to different servicers over the past several years.
"This change could complicate the transition to repayment for the 44% (or more than 14 million) of borrowers in our sample who will have to work with at least one new servicer after more than three years of suspended payments," they wrote. "So far, more than 17 million accounts for federal student loans have been transferred, and more transfers—either to different servicers or different servicing technology platforms—are expected in the coming months, ultimately reaching more than 30 million accounts."
"This is going to be a massive disaster that will crescendo right in time for the '24 election."
The CFPB's findings confirmed debt relief advocates' fears about restarting payments, particularly if the U.S. Supreme Court sides with right-wing challengers and strikes down the Biden administration's student debt cancellation plan. A decision from the high court is expected this month.
"This is ugly. And it is only going to get worse," Mike Pierce, executive director of the Student Borrower Protection Center (SBPC), wrote in response to the CFPB's findings. "It is going to be very, very bad."
Ben Kaufman, SBPC's director of research and investigations, agreed, warning of profound financial consequences for borrowers and major political implications.
"This is going to be a massive disaster that will crescendo right in time for the '24 election," Kaufman tweeted Wednesday.
The Biden administration was already planning to end the student loan payment pause 60 days after a Supreme Court decision on debt relief or 60 days after June 30—whichever comes first.
But the debt ceiling agreement negotiated by Biden and House Republican leaders cements that timeline into law and potentially hinders the administration's ability to implement another pause in the future, sticking the average federal student loan borrower with hundreds of dollars a month in additional financial burden.
The American Prospect's David Dayen called the looming restart of student loan payments an "oncoming train wreck," noting Wednesday that "the Office of Federal Student Aid (FSA), which is tasked with managing this impending chaos, has no additional funding to do it, and its budget was already inadequate."
Because of the huge number of loan account transfers that have occurred over the past three years, "millions of borrowers will get a notice from a private company they've never interacted with, telling them to resume payments on a loan that's been dormant for years," Dayen wrote. "If every borrower used StudentAid.gov to keep up with their account, and these companies were perfectly diligent, this might go smoothly."
"But student loan servicers have a terrible track record; Navient was described by the Consumer Financial Protection Bureau in 2017 as having 'systematically and illegally failed borrowers at every stage of repayment,'" he added. "If you want to see an example of how this might spiral out of control, look no further than the Medicaid purge now happening across the country."
"In 2021 alone, the expanded Child Tax Credit reached more than 61 million children and lifted nearly 4 million of them out of poverty."
As congressional Republicans intensify their assault on vital social programs, a trio of House Democrats on Wednesday reintroduced legislation that would make permanent the expanded monthly Child Tax Credit—a policy credited with lifting millions of U.S. children out of poverty.
The American Family Act—reintroduced by Reps. Rosa DeLauro (D-Conn.), Suzan DelBene (D-Wash.), and Ritchie Torres (D-N.Y.) and backed by 204 House Democrats—would ensure the permanency of the expanded Child Tax Credit (CTC) as established in the American Rescue Plan, the sweeping $1.9 trillion pandemic relief package signed into law by President Joe Biden in March 2021. The expanded CTC expired at the end of 2021 amid the Omicron surge of the Covid-19 pandemic.
The legislation would continue the $300 monthly credit for children age 6 and younger while expanding the maximum CTC to $250 per month, or $3,000 annually—up from $2,000 under the previous policy. The bill also provides the full CTC to "left-behind" children by revoking a rule limiting the refundable portion to $1,400 per year and eliminating the earnings requirement that previously excluded about one-third of eligible children from the full credit.
"An investment in our children and their families is an investment in the future of our country."
According to a summary from DeLauro's office, the expanded CTC assisted more than 61 million children and lifted nearly 4 million youngsters out of poverty in 2021 alone.
"When we expanded and improved the Child Tax Credit in 2021 under the American Rescue Plan, it provided unprecedented economic security for American families. It was the largest tax cut for middle-class and working families in generations," DeLauro said in a statement.
\u201cWhen we expanded the Child Tax Credit in 2021, it was the largest tax cut for middle-class & working families in generations.\n\nI'm glad to be joined by @RepDelBene & @RepRitchie in reintroducing the American Family Act, which would make the monthly CTC permanent. #ChildTaxCredit\u201d— Rosa DeLauro (@Rosa DeLauro) 1686157417
"These monthly payments helped parents pay bills, keep healthy and nutritious food on the table, afford school clothes and supplies, pay for a music lesson or a new pair of cleats, or manage a mortgage or rent payment," she added. "It lifted nearly 4 million children out of poverty in one year alone. It worked, and it is time we get it working for families and children once more."
DelBene said that "the enhanced Child Tax Credit was one of the most transformational policies from the American Rescue Plan, lifting millions of children out of poverty, boosting our economy, and helping parents pay rent, put food on the table, and afford other essentials for their kids."
"This is a proven program that will help grow our economy by rebuilding and strengthening the middle class," she added.
\u201cThe #ChildTaxCredit drastically reduced child poverty in the U.S. Let's make life just a little easier for working families and make it permanent by passing the #AmericanFamilyAct!\n\nhttps://t.co/m47WsvtyCg\u201d— Rep. Mark Pocan (@Rep. Mark Pocan) 1686165592
Torres asserted that "an investment in our children and their families is an investment in the future of our country."
"No government program has impacted so many Americans in such a short amount of time," he said. "It's one reason why I was proud to support the American Rescue Plan and why we must pass the American Family Act. Making the Child Tax Credit permanent provides much-needed financial stability for working families, helps them make ends meet and fight rising costs, and reduces child poverty."
"I can't think of a more worthy cause than helping meet the basic needs of children—our future—so they can learn, grow, and reach their fullest potential," Torres added.
\u201cThe #AmericanFamilyAct would make the expanded, monthly Child Tax Credit permanent, helping more kids live without hunger or the fear of poverty.\n\nLearn more about the eye-popping achievements of the #ChildTaxCredit here: https://t.co/bXYft0Ikbw\u201d— Economic Security Project (@Economic Security Project) 1686158628
Progressive advocacy groups welcomed the bill's reintroduction.
"We're thrilled to see lawmakers prioritizing tax credits for low- and middle-income families with the introduction of the American Family Act today," Amy Hanauer, executive director of the Institute on Taxation and Economic Policy (ITEP), said in a statement. "This legislation would help millions of children and families, especially the lowest-income families who currently make too little to receive the CTC."
"We know the CTC works wonders to boost economic security; when the expanded credit was in place in 2021 child poverty was cut by an astonishing 46%," Hanauer added. "Restoring the more robust CTC should be a top priority of all lawmakers from both sides of the aisle. But unfortunately, this bill stands in stark contrast to other tax bills taking shape that would deeply cut taxes for profitable corporations and wealthy families."
\u201cRestoring the more robust #ChildTaxCredit should be a top priority of all lawmakers.\n\nUnfortunately, that goal stands in stark contrast to other tax bills taking shape that would prioritize tax cuts for profitable corporations and wealthy households. https://t.co/GY0Qp2n2fg\u201d— ITEP (@ITEP) 1686154268
The revived American Family Act comes amid relentless Republican attacks on social programs benefitting families, including slashing funds for rental assistance and education programs and the imposition of new work requirements on some recipients of Supplemental Nutrition Assistance Program (SNAP) benefits and Temporary Assistance for Needy Families (TANF) as conditions for agreeing to raise the debt ceiling to avoid what would have been a historic U.S. default.
"The governor has sided with the interests of private equity, hedge funds, and their powerful corporate lobbyists over and against the affordability concerns of people in our state," said the lead sponsors of the legislation.
Progressive lawmakers expressed anger Tuesday after Democratic Colorado Gov. Jared Polis vetoed a landmark affordable housing bill following a lobbying push by corporate interests who opposed it.
House Bill 23-1190 would have given local governments a right of first refusal to buy certain multifamily properties and convert them to publicly owned housing units. Both Democratic-led chambers of the Colorado Legislature passed the proposal, but Polis rejected the effort to expand the supply of affordable shelter in a state hard-hit by the nationwide housing crisis.
In a letter explaining his veto, Polis—an entrepreneur-turned-public official worth an estimated $400 million—wrote that he supports "local governments' ability to buy these properties on the open market and preserve low-cost housing opportunities," but he is "not supportive of a required right of refusal that adds costs and time to transactions."
Left unsaid by Polis was that his veto was sought by a coalition of powerful business groups, including Colorado Concern, the Colorado Real Estate Alliance, the Colorado Bankers Association, and the Land Title Association of Colorado. Those organizations asked the governor to kill the legislation, and he did, aligning himself with moneyed interests over affordable housing advocates and members of his party.
All four of the bill's lead sponsors—Sens. Faith Winter (D-25) and Sonya Jaquez Lewis (D-17) and Reps. Andrew Boesenecker (D-53) and Emily Sirota (D-9)—condemned Polis in a joint statement released Tuesday night.
"It should be alarming to all of us that the governor has failed to usher these proven affordability measures across the finish line."
"The governor has sided with the interests of private equity, hedge funds, and their powerful corporate lobbyists over and against the affordability concerns of people in our state," the sponsors said. "It should be alarming to all of us that the governor has failed to usher these proven affordability measures across the finish line."
The lawmakers described Polis' stated commitment to affordable housing as "rhetorical" and said they felt blindsided after being told on "numerous occasions" that the governor had no intention of vetoing their bill, which would have made Colorado the first state in the country with a right-of-first-refusal requirement for multifamily housing.
"It is alarming that the governor has vetoed H.B. 23-1190, given the fact that the governor's office was engaged in helping us count votes on the policy as late as the last week of session," said the lawmakers.
Taking aim at the groups that urged Polis to nix the bill, they added that "the only currency you have in the state Capitol is your word—and with today's actions and the behind-the-scenes campaign leading up to the veto, several organizations have demonstrated that they are indeed bankrupt."
On Wednesday morning, journalist David Sirota—Emily Sirota's husband and founder of investigative outlet The Lever—blasted Polis for "bowing to the demands of a right-wing oil billionaire's editorial page and delivering an enormous victory to the most powerful corporate lobby firm in Colorado."
\u201c\ud83d\udea8 Update: Democratic Gov. @JaredPolis just vetoed the Democrats\u2019 affordable housing bill, bowing to the demands of a right-wing oil billionaire\u2019s editorial page & delivering an enormous victory to the most powerful corporate lobby firm in Colorado. #copolitics\u201d— David Sirota (@David Sirota) 1686149289
H.B. 23-1190, drafted after a similar right-of-first-refusal initiative for mobile home parks was enacted last year, would have given municipalities and counties a leg up in purchasing multifamily residential or mixed-use buildings constructed more than 30 years ago with at least five units in rural areas and at least 15 units in urban and suburban areas.
As The Colorado Sunreported: "Local governments would have had seven days to indicate that they were interested in buying an eligible property before it was listed on the open market, and then 30 days to make an offer and 60 days to close. The local governments would have had to pay market value for the properties and use them to increase their community's affordable housing stock."
"You will see a right-of-first-refusal bill next year."
The newspaper noted that Polis' veto of the legislation "represents another big failure at the Colorado Capitol this year for affordable housing advocates. Democrats declared the state's 2023 lawmaking term the year of affordable housing, but many of their priority measures failed, including a rewrite of Colorado's land-use policies and an eviction protections bill."
Last year, a Polis veto threat forced Colorado Democrats to remove a provision that would have capped annual rent hikes for mobile home lots from H.B. 22-1287. The bill was signed into law by the governor, but without the proposed rent stabilization rule, mobile home park residents remain at the mercy of landlords.
Looking ahead to the legislative session that begins in January, Boesenecker said, "You will see a right-of-first-refusal bill next year."
As Colorado Public Radioreported, the lawmaker "called for a more cohesive approach next year, saying that a lack of unified support for this year's measures 'allowed the opposition to really circle around them and tear them down.'"