(Bloomberg) — For Americans worried about rising prices and shrinking household budgets, January could deliver another blow to the bottom line.
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At the end of the month, the government’s moratorium on federal student loan payments expires, meaning the loans will pile up again at interest and borrowers are expected to resume monthly payments.
Except for Congress’ action, many American families will lose out on January 15 monthly payments from the government totaling hundreds of dollars, gained from the temporary expansion of the Child Tax Credit under President Joe Biden’s Pandemic Relief Act.
The imminent cut off of two major sources of federal aid to fight the pandemic for American families threatens to increase Americans’ pessimism about the state of the economy, 10 months before they go to the polls to decide whether Biden’s party will retain control of Congress.
A Gallup poll, released on December 2, found that 45% of American households say inflation is causing them financial hardship, and a Wall Street Journal poll published Tuesday found that nearly 60% of Americans think the economy is weak or not good and heading toward The error. direction.
An extension of the expanded children’s tax credit is included in Biden’s Build Back Better legislation, and his suite of climate, tax and social spending measures. But the bill is stalled in the Senate. The prospects for extending the student loan moratorium are bleaker — there is little interest internally in the White House, according to two people familiar with discussions on the issue.
Treasury Secretary Janet Yellen said during a hearing last week that the expanded children’s tax credit has put about $77 billion in families’ pockets, helping 61 million American children so far. Monthly payments can be up to $300 per child, or $3,600 per year.
The expiration of the payments is already on the minds of some Democrats in Congress.
“Many families have found it invaluable for school needs, health care needs, and a few other things to enrich the lives of their children,” Representative Lloyd Doggett, a Texas Democrat and leading member of Tax Writing Methods, told the Means Committee. “It is lifting families out of poverty, and we will face a setback and a real setback if it does not continue.”
Without an extension, the tax credit would return to $2,000 per child, and Americans would have to wait until tax filing season to claim it on their returns.
Doggett said Congress has until “a few days before January 15” to act. Better rebuilding legislation would extend the more expansive version of credit for most families for another year, ensuring payments during the midterm elections. Extended credit will become permanent for families with little or no income.
Senator Ben Cardin, a Democrat from Maryland, said Congress could make the payments retroactive if it doesn’t pass an extension in time, but that missing a mid-January deadline would lead to “turmoil.”
“It’s very important to keep this program on the right track,” Senator Ron Wyden, an Oregon Democrat who chairs the Tax Writing Fiscal Committee, told reporters last week.
If families lose their monthly tax credit payments and resume student loan payments, it could mean a loss of several hundred dollars in disposable income for many families — all while they face price hikes due to inflation and the omicron variable spread of the coronavirus.
“The pandemic may be with us for some time, and we hope it will not completely stifle economic activity, but it is affecting our behavior in ways that contribute to inflation,” Yellen said last week at a Reuters event.
Pressure is mounting on Biden to prevent federal student loan borrowers from having to resume payments on February 1, after a moratorium dating back to the start of the pandemic expired in March 2020.
The administration last extended the suspension period in August, affecting about 41 million borrowers, but said at the time that would be the final extension.
Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren and Representative Ayanna Pressley, all Democrats, called on Biden on Wednesday to temporarily halt student loan payments until American employment reaches pre-pandemic levels, and cancel up to $50,000 in debt per borrower.
They cited an analysis they requested from the Roosevelt Institute, a nonprofit research group affiliated with the Franklin Roosevelt Presidential Library and Museum, which found that resuming student loan payments would take $85 billion annually from the family budgets of about 18 million borrowers.
Schumer said in a statement Monday that the moratorium saved borrowers an average of $393 per month, in which he also noted uncertainty about the omicron variable and called for an extension.
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“If we don’t extend the pause on payments, this terrible interest will accrue at a time when many are still not financially prepared to take on a huge monthly bill,” he said. “Furthermore, with the spread of Omicron, the uncertainty of what will happen next requires at least one student loan repayment extension.”
He pointed to a survey last month by the Student Debt Crisis Center, an advocacy organization, and Savi, a startup that helps borrowers reduce their payments. The groups found that while most borrowers are fully functional, 89% say they are not financially secure enough to resume payments. 45 percent said their current financial health is poor or very poor, compared to 25 percent before the pandemic.
A White House official, who asked not to be named to discuss the matter, said the administration wants an orderly return to repay the loan and will help borrowers make the adjustment.
Biden has resisted proposals to waive student loans entirely. Warren, one of the idea’s leading advocates, and three other Democratic senators last week sent a letter to four federal loan service workers asking companies to outline steps they would take to get millions of borrowers back in payments once the moratorium expires on Jan. 31.
The senators wrote that half of the borrowers’ loans will be “transferred to a new loan service provider, an unprecedented event with increased risk of harm to the borrower.”
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