Student Loan Payment Pause Benefits High-Income Households the Most

A great deal has changed since March 2020, when executive and Congressional action paused payments on most federal student loans. The national unemployment rate spiked at 14.7 percent in April 2020, but receded dramatically and has stayed below 4 percent since December of 2021. Meanwhile, inflation climbed from an average of 1.2 percent in 2020 to 9.1 percent in June 2022—the biggest jump in 40 years. 

Yet, following nine extensions, the payment pause on student loans remains in place at an approximate direct cost of $5 billion per month. The Biden Administration also has moved to end some repayments altogether, by forgiving hundreds of billions of dollars in federal student loans. Whether the forgiveness program is legal, and whether millions of Americans will have to repay their student loans back in full, is now before the U.S. Supreme Court. Justices will hear the case on February 28. 

These two policies may be tethered to one another in court, but they have strikingly different distributional impacts. While the White House claims that nearly 90 percent of the relief provided under the forgiveness plan would go to families with incomes less than $75,000, the payment pause has provided more than 65 percent of the relief to families with incomes greater than $75,000. In fact, the top 20 percent of households receive nearly 30 percent of the benefit while only accounting for 16 percent of families with federal student debt. 

We look at the household student loan balances, payments, as well as earnings, to determine the relative impacts of the payment pause program on lower- and higher-income Americans. Our analysis shows the across-the-board pause on federal student loan payments disproportionately benefits the most affluent borrowers. Continuing the payment pause without means-testing its benefits leads to ballooning costs for taxpayers.