Federal student loan borrowers are facing a reckoning as a result of the tentative debt ceiling deal struck in Washington.
If the agreement between the Biden administration and top congressional Republicans is signed into law, payments on federal student loans that were paused at the start of the pandemic will be reinstated at the end of August, with those bills coming due the following month.
That means some 43 million borrowers like Daniel Galván, a 34-year-old from Southern California, must start tightening their household budgets amid higher food costs and other unforeseen expenses.
Galván, a university administrator who still owes about $10,500 on his student loans, said payments may have stopped over the last three years, but his financial obligations only grew.
"The pause was helpful," he said Tuesday. "My wife and I could buy a house in 2020. The money that would have gone to a loan payment helped me save up for that house and our initial expenses. Now, we have 1-year-old twins, and they are not cheap."
In March 2020, then-President Donald Trump signed the CARES Act, which allowed federal student loan holders to forgo payments without being penalized. President Joe Biden extended the pause as concerns about inflation and rising gas prices continued to sap consumers.
Interest on federal student loans was also suspended to the benefit of borrowers. The moratorium, however, did not apply to borrowers with privately held loans.
Natalia Abrams, a founder of the Student Debt Crisis Center, a nonprofit advocacy group based in Los Angeles, criticized the White House for allowing student loan relief to be clawed back, particularly while the Biden administration's larger plan to forgive billions of dollars in student loan debt remains in limbo in the Supreme Court.
"Borrowers got sold out," Abrams said. "They feel thrown under the bus with these negotiations."
Her concern, she said, is the potential for millions of people getting socked with bills that they didn't realize are due and can't afford. That would be true for borrowers who graduated in 2020 and have not had to factor in loan payments these past three years, she said.
"It really seems that could punish young folks," added Rep. Ro Khanna, D-Calif., a member of the House progressive caucus. "And it would be in my view politically disastrous to force millions of young folks to start paying their student loans when Trump had forgiven them, more or less.”
Republicans have been staunchly against continuing the student loan pause, which House Speaker Kevin McCarthy, R-Calif., said has cost taxpayers about $5 billion each month.
"What the president did, he went unconstitutionally and said he was going to waive certain people part of their debt for student loan(s), but then he paused everybody's student loan," McCarthy said of Biden on "Fox News Sunday." He added: "So everybody who borrowed a student loan within 60 days of the signing is going to have to pay that back."
Cody Hounanian, the executive director of the Student Debt Crisis Center, said he's worried that the Education Department is not positioned to take on the "monumental task" of informing student borrowers that they must pay back their loans. He added that student loan servicers, some of which have been accused of predatory lending and deceptive practices, can't be trusted to have borrowers' best interests in mind.
"The lives of 40 million people are going to be disrupted, while at the end of the day, the cost is a drop in the bucket for the federal government," Hounanian said. "On the other side, it's going to be incredibly harmful to a lot of people's lives."
But Education Secretary Miguel Cardona has said his agency is ready to deal with the fallout after warning this spring that student loans could eventually come due as the Supreme Court weighed litigation related to student debt relief.
In a tweet Sunday, Cardona pledged a "smooth return to the repayment process," while assuring that the debt ceiling deal "protects our ability to pause student loan payments" during future emergencies.
Biden's overall plan to forgive federal student debt is estimated to cost over $400 billion.
The administration has proposed discharging up to $10,000 in debt for those earning less than $125,000 a year or couples who file taxes jointly and earn less than $250,000 annually. Pell Grant recipients, who are the majority of borrowers, would be eligible for an additional $10,000 in debt relief.
Some 20 million people could have all of their remaining student loan debt erased under the plan.
But six Republican-led states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — have started litigation accusing the federal government of exceeding its authority in trying to forgive student debt.
Legal experts say the states may feel emboldened, given the high court's 6-3 conservative-leaning majority. During oral arguments in February, the conservative justices appeared skeptical of the administration's plan, fueling concern among student advocacy groups and Democrats that Biden's goal to provide student debt relief — which could haunt him as he looks to re-election in 2024 — may be thwarted.
A decision by the Supreme Court is expected before the end of June.