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The federal government helped millions of Americans through the early months of the pandemic by allowing them to defer payments, with little negative effect, on mortgages and student loans, two markets in which it holds huge sway. But the government’s reach doesn’t extend to credit-card lending, auto loans or personal loans, and borrowers with those forms of debt ended up with much less relief, the Wall Street Journal reported. As a consequence, federal debt relief has been of greater benefit to homeowners and college graduates, many of whom entered the recession in relatively good financial shape. Lower-income workers, who are more likely to rent and to not have a college degree, saw less benefit. Other programs, including expanded unemployment insurance, were more helpful for lower-income workers. The deferral programs, unprecedented in scale, are credited with keeping the economy temporarily afloat. But the divergence in how the programs are playing out reflects that the tools used to restart an economy are usually blunt, and can have unexpected effects. Deferral programs for pausing mortgage or student-loan payments were set out by the CARES Act, the $2 trillion stimulus program passed in March, and shaped by further government involvement. That made them easier to get and more generous and flexible. For example, mortgage servicers were told to let borrowers pause payments for up to a year if their loans were government-backed, and there are rules to protect borrowers from being forced to make up all the missed payments at once. Deferrals on federal student loans are granted automatically, with no interest accruing, through Dec. 31. Deferral programs for credit cards, auto loans and personal loans, meanwhile, were left to lenders and often decided case by case. Many lenders granted customers two to three months of relief before requiring them to start paying again. Some are asking borrowers to pay back their skipped payments in a lump sum.

The U.S. government stands to lose more than $400 billion from the federal student loan program, an internal analysis shows, approaching the size of losses incurred by banks during the subprime-mortgage crisis, the Wall Street Journal reported. The Education Department, with the help of two private consultants, looked at $1.37 trillion in student loans held by the government at the start of the year. Their conclusion: Borrowers will pay back $935 billion in principal and interest. That would leave taxpayers on the hook for $435 billion. The analysis was based on government accounting standards and didn’t include roughly $150 billion in loans originated by private lenders and backed by the government. The losses are far steeper than prior government projections, which typically measure how much the portfolio will cost the government in the next decade, not the entire life of the loans. Last year the Congressional Budget Office estimated that the student-loan program would cost taxpayers $31.5 billion, including administrative costs.

Progressive calls for President-elect Joe Biden to forgive student debt in his first 100 days of office should be ignored in lieu of a more moderate proposal: forgiveness capped at $5,000 of debt, according to a commentary in today's Wall Street Journal. Workers with a college degree are the highest paid in the economy and the last to get laid off during a downturn. Borrowers with the largest balances are the least likely to default, according to the commentary. That’s because they’ve often invested in professional or graduate degrees that lead to careers with high earning potential. Borrowers who owe less than $5,000 are the most likely to default, according to the commentary. Many in this category started a degree but didn’t finish, and thus aren’t enjoying the higher earnings afforded by a degree. Then there are those with no college education. The plight of borrowers with college degrees is surely preferable to that of workers getting by on the lower wages paid to the less-educated. Many Americans without degrees come from less well-off families; a higher percentage lack emergency savings; and they are the first to be laid off in a downturn. Read the full commentary. (Subscription required.) 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

In the months since the U.S. Supreme Court struck down the Consumer Financial Protection Bureau’s structure as unconstitutional, the agency has pressed on in federal courts across the country to salvage cases and prevent the unraveling of pending enforcement actions. The CFPB yesterday faced its latest test in that effort as a federal appeals court in San Francisco heard arguments over whether it should toss the investigative demand that gave rise to the Supreme Court challenge, the National Law Journal reported. Appearing before the U.S. Court of Appeals for the Ninth Circuit, CFPB lawyer Kevin Friedl argued that the Supreme Court’s ruling in June should not torpedo the agency’s request for records from Seila Law, a California firm that was sued in 2017 after refusing to turn over information about its debt-relief services. Friedl dismissed the notion that the CFPB should have to reissue its so-called civil investigative demand, telling a three-judge panel of the Ninth Circuit that “there’d be no point in making the agency go back to square one here.” “This is something we issued as part of a still-ongoing investigation,” he said, adding that having to reissue the investigative demand would occasion “at least months of further delay, if not more.” In its split decision, the Supreme Court stripped the CFPB of its independence, ruling that the agency’s director should be fireable at the president’s will. CFPB Director Kathy Kraninger responded to the ruling by endorsing, or ratifying, court actions that had been brought before the 5-4 decision, in an effort to bolster them against challenges.