Borrowers and lenders left in limbo as deadline to extend student loan payment break approaches
WASHINGTON — With the pause on federal student loan payments set to expire at the end of the month and no announcement from President Joe Biden as to whether he will issue another extension, borrowers and lenders are growing frustrated with lack of clear policy direction.
Although most debt cancellation advocates, policy experts and loan managers do not expect Biden to resume federal loan payments so close to the midterm elections, the decision-making process The White House’s endless process led to uncertainty for the two borrowers trying to plan their finances. and managers unsure if they should start notifying loan holders of upcoming payments.
“Financial stress is the No. 1 stressor in people’s lives, and it adds even more stress and confusion,” said Natalia Abrams, president and founder of the Student Debt Crisis Center. “Secretary of Education [Miguel] Cardona said he would give borrowers ample notice – we are now just three weeks away from a financial cliff.
Biden has four times extended the federal student loan moratorium, which began under former President Donald Trump. The White House has not said whether it will continue to extend it. The White House did not respond to a request for comment.
Supporters of debt forgiveness say inflation is already putting financial pressure on many borrowers and Biden’s late announcement is adding to people’s financial anxiety unnecessarily. Adding to the uncertainty is the lack of clarity over whether and when it will cancel some student loans.
“It’s really confusing for borrowers and managers to navigate,” said Kyra Taylor, an attorney at the National Consumer Law Center. “There’s this question of ‘when will I have to make payments again?’ And then there’s a secondary question of ‘how much will I have to repay with impending cancellation?’
Biden could announce a decision on suspending student loan payments by the end of the week, according to people familiar with White House talks, but his stance on debt cancellation is unclear. Biden said he would decide on student loan forgiveness by the end of August.
Biden has indicated this year that he is open to $10,000 in debt relief per borrower, but some debt relief supporters worry he has cooled off on the idea in part because of the concerns about inflation.
He could extend the student loan moratorium until next summer, a person briefed on the White House talks said.
Federal student loan holders have not had to make payments since March 2020, when Trump signed into law the CARES Act, which suspended payments until September 2020 and prevented interest from accumulating for the roughly 42 million borrowers.
Trump then took executive action to extend the deferment period until January 2021. Biden, on his first day in office, signed an executive order extending it until September 30. It has since issued three more extensions, the most recent of which expires on August. 31.
The moratorium does not apply to borrowers with private loans.
The lack of guidance from the White House as the moratorium nears its expiration has also made planning difficult for loan servicers, who are tasked with communicating clearly with borrowers about when their payments are due.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, said companies administering student loans will have to proceed as if payments resume next month, although the possibility remains increasingly unlikely.
To prepare, companies have hired thousands of workers to handle what they anticipate will be questions from millions of borrowers once payments resume. If loan repayments don’t restart, many of those workers will be out of work, Buchanan said.
Buchanan said loan administrators have not received any formal indication from the federal government on when repayments will begin and if there will be any type of loan forgiveness. If they don’t receive an update in the next few days, businesses will be required by law to send out notices this week telling all borrowers they will have to start repaying their loans next month.
“We put all this effort into something that 10 or 15 days before it happens the government changes its mind,” Buchanan said. “There are a lot of wasted administrative costs. There are tens of millions of dollars being invested every time we ramp up to start and we don’t. It really is a waste of resources. »
Molly Roecker contributed.