Student Loan Pause Extended Again: Is There an Endgame? | personal finance

Ana Helhoski

Federal student loan borrowers just got an extra four months before their payments resume.

If that feels like déjà vu, it’s because this is the sixth extension of the interest-free payment pause that went into effect in March 2020 under the Trump administration, at the start of the COVID-19 pandemic. Payments were scheduled to restart from May 2.

This latest extension, through August 31, will bring the total number of months without payments to 30. Nearly 37 million of the nation’s federal student loan borrowers have had no payments due during the pause, saving them a total of $195 billion. in payments, according to a March report from the New York Federal Reserve.

have used the room for maneuver in their budgets to handle essentials like food, rent, and childcare. Some have managed to tackle bigger financial goals, like paying off credit card debt or saving for emergencies. Some even continued to pay every month.

For months, Education Department officials have raised concerns about whether most borrowers would be able to handle payments after more than two years without them, according to a recent Government Accountability Office report.

On Wednesday, the White House said borrowers are not ready yet. And it offered a big win for 5 million borrowers with delinquent loans: an automatic return to good standing. Delinquent borrowers have long faced wage garnishment, damage to their credit, and substantial collection fees. Debtors have had the option to seek rehabilitation during the break; now it’s automatic.

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It is unclear whether borrowers will be able to afford payments in September. At a minimum, the additional deferment gives borrowers more time to plan.

But plan for what, exactly?

Is there an endgame?

Forgive student debtors for hesitating: the government called last August’s extension “final,” but several more have followed.

Employment is back to pre-pandemic levels, COVID-19 cases are declining, and other aid related to the pandemic has expired. But the Biden administration, in a White House press release, said the Federal Reserve data predicted a rise in late payments and defaults if payments resumed.

Some experts are skeptical.

“This feels much more policy-driven than public health,” says Robert Kelchen, a professor and head of the department of educational leadership and policy studies at the University of Tennessee at Knoxville.

Kelchen says he thinks a further extension this year could be likely. He also raised the question of whether the Biden administration will ever resume payments. “They won’t resume at the end of August for voters to pay right before the midterms,” ​​says Kelchen. “And then, at that point, the re-election campaign begins.”

Kelchen is not alone in seeing the move as largely political. Betsy Mayotte, president and founder of the Institute of Student Loan Counselors, says any extension will benefit borrowers, but four months could be more palatable to voters during the midterm elections, whether they support or oppose extend the payment pause.

“If they had [extended] until the end of the year, some people might take that to mean, ‘he just did it to pass the midterms,’” says Mayotte.

Too? Is not sufficient?

Extending the payment restart raises the stakes for the Biden administration to make a decision on debt cancellation, says Mike Pierce, executive director of the advocacy group the Student Borrower Protection Center. “I think this is the clearest sign yet that big things are coming,” he adds.

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The extension “doesn’t make sense if you decouple it from the larger conversation about student debt cancellation and student loan reform,” says Pierce, adding that the timing of the extension’s expiration raises the possibility of cancellation of the debt weeks before voters head to the center.

The Biden administration has repeatedly said the president would support the cancellation through congressional action despite calls by Democrats in Congress, along with advocates for student borrowers, state attorneys general and a former Secretary of Education, to do so through executive action. Biden has questioned his unilateral ability to do so.

The amount of the cancellation, if any, has also been a tug-of-war. While on the campaign trail, Biden pledged to sign off on $10,000 in debt per borrower, a promise he has distanced himself from since he became president. Some Democratic lawmakers like Senators Chuck Schumer of New York and Elizabeth Warren of Massachusetts have called for Biden to write off $50,000 in debt.

While broad cancellation of student debt has not taken place, more than 700,000 borrowers have seen $17 billion in loan debt forgiven through a revamped Public Service Loan Forgiveness program and other existing forgiveness programs.

Is it time to go back to normal?

Meanwhile, Republican lawmakers have criticized both the extension and calls by their Democratic colleagues to write off student debt. Rep. Virginia Foxx of North Carolina, who sits on the House Education Committee, called the pause extension “outrageous,” while two others, Reps. Jim Banks of Indiana and Bob Good of Virginia, had filed previously a bill to block another extension.

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Leaders in the private student loan industry are also against extending the pause, as their business has taken a two-year hit from federal borrowers who chose to maintain the pause rather than refinance privately. SoFi CEO Anthony Noto wrote in a March 17 blog post that extending the pause was “fiscally irresponsible at best” and “takes from struggling families and gives it to the rich, And at worst, it’s political theater.”

Student loan servicers are unlikely to be any more prepared to resume processing payments or offer guidance to borrowers in September than they were in May, says Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents servicers. These private companies are contracted by the government to service federal student loans.

Adds Buchanan: “In fact, we may be less prepared just because you’ve burned a lot of resources preparing and now they’re all wasted.”

Who needs a plan? borrowers

Buchanan says he worries that a further delay means borrowers won’t take the restart seriously. “They’ll ignore it until they get a delinquency notice,” he says. “The more we push this and do it at the last minute, the worse our problems become.”

What leaders on both sides of the aisle, the private lending industry and student borrower advocacy groups, seem to agree on is that the pause doesn’t fix the core problem: The student loan system is broken. And, as Pierce says, a four-month extension is not a long time to implement significant reform.

Four months gives borrowers more time to, at a minimum, make a plan for the payment to restart. When ever it is.