Just four days away from a potentially devastating default, the U.S. Senate on Thursday night passed legislation to lift the nation’s debt ceiling by a 63-36 vote, sending the bill to President Biden’s desk where he has vowed to sign it “as soon as possible.”
As a result, June Social Security checks will indeed go out on schedule, and the years-long pause on federal student loan payments will officially end toward the end of this summer.
The Fiscal Responsibility Act of 2023, the product of weeks of contentious negotiation between President Joe Biden and Speaker of the House Kevin McCarthy (R-CA), will raise the $31.4 trillion debt limit through Jan. 1, 2025, that keeps non-defense spending roughly flat with current levels, claws back some pandemic aid and IRS tax enforcement funding, and toughens work requirements for safety-net programs, among other things.
The bill passing the House and Senate this week effectively ended the worst standoff over the debt ceiling in a dozen years. The 2011 debt limit standoff led to a 17% decline in the S&P 500, led to the first-ever downgrade of the government’s credit rating and pushed up the nation’s borrowing costs.
The Republican-controlled House passed the bill on Wednesday evening in a 314-117 vote, sending it to the Senate. The Treasury Department warned it would be unable to pay all its bills on June 5 if Congress failed to act, which would have triggered economic chaos.
Both Republicans and Democrats are claiming victories in the bipartisan agreement, although many conservative Republicans and progressive Democrats opposed the bill.
“It safeguards peoples’ health care and retirement security, protecting bedrock programs like Social Security, Medicare, and Medicaid.”
President Joe Biden
President Biden, who plans to address the nation regarding the agreement on Friday night, released a statement upon the bill’s passage in the Senate on Thursday night.
“Tonight, Senators from both parties voted to protect the hard-earned economic progress we have made and prevent a first-ever default by the United States. Together, they demonstrated once more that America is a nation that pays its bills and meets its obligations—and always will be,” Biden said. “I want to thank Leader Schumer and Leader McConnell for quickly passing the bill.”
Biden’s statement went on to say that while no one gets everything they want in a negotiation, “this bipartisan agreement is a big win for our economy and the American people.”
He noted that the bill “safeguards peoples’ health care and retirement security, protecting bedrock programs like Social Security, Medicare, and Medicaid.”
The bill essentially leaves those programs as is, and does not include any reforms to improve the solvency of Social Security.
Nearly two-thirds of beneficiaries rely on Social Security for at least half of their income, and for 40% of recipients, the payments comprise at least 90% of their monthly income, according to the National Committee to Preserve Social Security and Medicare. The average Social Security benefit is $1,827 a month in 2023.
Treasury Secretary Janet Yellen also released a statement Thursday night.
“This legislation protects the full faith and credit of the United States and preserves our financial leadership, which is critical to our economic growth and stability,” Yellen said. “A default would have caused severe hardship for American families, potentially leading to the loss of millions of jobs and trillions in household wealth, and higher financing costs for American taxpayers for years to come.”
Yellen had warned earlier this year that “a default on our debt would produce an economic and financial catastrophe,” and that “it is unlikely that the federal government would be able to issue payments to millions of Americans, including our military families and seniors who rely on Social Security.”
Student loan impacts
The Fiscal Responsibility Act of 2023 forces the resumption of federal student loan payments that have been paused since the start of the coronavirus pandemic in March 2020. The agreement terminates the ongoing pause on monthly payments and interest after Aug. 30, meaning some 45 million borrowers will be back to paying close to $400 per month for their student loans by the start of September.
The bill does not specify exactly how or when the Department of Education must resume collecting payments, which are expected to amount to about $5 billion per month.
But the deal does not affect President Biden’s controversial student debt cancellation plan, which Republican leaders had been seeking to repeal as part of the debt ceiling negotiations. That plan, which provides up to $20,000 of loan forgiveness per borrower, still remains in limbo at the Supreme Court. A decision on whether or not it can proceed is expected in the coming weeks.
SEE ALSO:
• Debt Ceiling Deal: Social Security Payments Likely Not Delayed; Student Loan Payments to Resume
• Debt Limit Standoff: Are Social Security Benefits at Risk?
• Supreme Court Hears Arguments on Biden’s Student Loan Forgiveness Plan
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
