At the very least, the additional reprieve provides borrowers with more time to plan. But plan for what, exactly?
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 onset of the COVID-19 pandemic. Payments had been scheduled to restart beginning May 2.
On Wednesday, the White House said borrowers still aren’t ready. And it offered up a huge win for 5 million borrowers with loans in default: an automatic return to good standing. Borrowers in default have long faced wage garnishment, damage to their credit and substantial collections fees. Debtors have had the option to pursue rehabilitation during the pause; now it’s automatic.
Kelchen isn’t the only one who sees the move as largely political. Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says any extension will benefit borrowers, but four months might be more palatable to voters during the midterm election, whether they support or oppose extending the payment pause.
The Biden administration has repeatedly said the president would support cancellation via congressional action despite calls from Democrats in Congress, along with student borrower advocates, state attorneys general and one former Secretary of Education, to do so via executive action. Biden has questioned his unilateral ability to do so.
Leaders in the private student lending industry are also against extending the pause since their business has taken a two-year hit from 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 pause was “at best fiscally irresponsible” and “takes from struggling families and gives to the affluent, and at worst it’s political theater.
What leaders from both sides of the aisle, the private lending industry and student borrower advocacy groups all seem to agree on is that the pause doesn’t fix the core issue: The student lending system is broken. And, as Pierce says, a four-month extension isn’t much time to implement meaningful reform.
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