The student loan break is extended again – is there an endgame? | Personal finance


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

If that sounds like deja vu, that’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 coronavirus pandemic. COVID-19. Payments were to resume from May 2.

This latest extension, through August 31, will bring the total number of months without a payment to 30. Nearly 37 million federal student loan borrowers across the country did not have to make payments during the pause, putting them saved $195 billion in collective waivers. payments, according to a March report from the New York Federal Reserve.

They used the leeway in their budgets to take care of the 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 monthly.

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For months, Department for Education officials have expressed concern over whether the majority of borrowers could manage payments after more than two years without them, according to a recent report by the Government Accountability Office.

On Wednesday, the White House said borrowers were still not ready. And he offered a huge win to 5 million borrowers with loans in default: an automatic return in good standing. Borrowers in default have long faced wage garnishments, damage to their credit and substantial collection costs. The debtors had the possibility to continue the rehabilitation during the break; now it’s automatic.

It is unclear whether borrowers will be better able to meet payments in September. At the very least, the additional reprieve gives borrowers more time to plan.

But predict what, exactly?

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Is there an endgame?

Forgive student debtors for being skeptical: The government called last August’s extension “final,” but it was followed by several others.

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

Some experts are skeptical.

“It seems much more driven by politics than by public health,” says Robert Kelchen, professor and head of the department of educational leadership and policy studies at the University of Tennessee at Knoxville.

Kelchen says he thinks an additional extension this year might be likely. He also raised questions about whether the Biden administration will ever resume payments. “They’re not going to resume at the end of August to get voters reimbursed right before the midterm elections,” Kelchen said. “And then, at that point, the re-election campaign begins.”

Kelchen is not alone in viewing 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 in the midterm elections, whether they support or oppose to the extension of the payment break.

“If they had [extended] until the end of the year, some people might consider this as ‘he only did it to pass the mid-term exams’,” explains Mayotte.

Too much? Not enough?

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

The extension “doesn’t make sense if you decouple it from the larger conversation about canceling student debt and reforming student loans,” says Pierce, adding that the timing of the extension’s expiration opens up the possibility of debt cancellation weeks before voters head to the polls.

The Biden administration has repeatedly said the president would support the cancellation via congressional action despite calls from Democrats in Congress, as well as student loan advocates, state attorneys general and a former education secretary, to do so via executive action. Biden has questioned his unilateral ability to do so.

The amount of cancellation, if any, was also a tussle. During the campaign trail, Biden pledged to sign $10,000 debt forgiveness per borrower, a promise he has strayed from since becoming president. Some Democratic lawmakers like Sens. Chuck Schumer of New York and Elizabeth Warren of Massachusetts called on Biden to forgive $50,000 in debt.

Although blanket student debt forgiveness has not materialized, more than 700,000 borrowers have seen $17 billion in debt forgiven through a revamped Civil Service Loan Forgiveness Program and other debt relief programs. existing cancellation.

Is it time to get back to normal?

Republican lawmakers, meanwhile, criticized both the extension and calls from fellow Democrats to write off student debt. Representative Virginia Foxx of North Carolina, who sits on the House Education Committee, called the break extension “outrageous”, while two others, Representatives Jim Banks of Indiana and Bob Good of Virginia, had previously introduced a bill to block another extension.

Private student loan executives are also opposed to extending the pause, as their business has been hit for two years by federal borrowers who chose to stick with the pause rather than refinance privately. . SoFi CEO Anthony Noto wrote in a March 17 blog post that extending the hiatus was “fiscally irresponsible at best” and “takes from struggling families and gives to the wealthy, and at worst it’s political theater.” “.

Student loan servicers are unlikely to be any more ready to resume payment processing or offer advice to borrowers in September than in May, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents managers. These private companies are contracted by the government to handle federal student loans.

Buchanan adds: “Actually, we may be less ready just because you’ve exhausted a bunch of resources preparing and now it’s all wasted.”

Who needs a plan? Borrowers

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

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

Four months gives borrowers more time to, at a minimum, make a plan for the payment to start again. Whenever it does.

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