Student loan pause extended again. Is there an end game?

(NerdWallet) — 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 onset of the COVID-19 pandemic. Payments had been scheduled to restart beginning May 2.

This latest extension, through Aug. 31, will put the total number of months without payments at 30. Nearly 37 million of the nation’s federal student loan borrowers haven’t had to make payments during the pause, saving them a collective $195 billion in waived payments, according to a March report from the New York Federal Reserve.

They’ve used the wiggle room in their budgets to handle essentials like food, rent and child care. Some have managed to tackle larger financial goals, like paying down credit card debt or saving up for emergencies. Some even kept paying each month.

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

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.

It’s unclear if borrowers will be more able to cope with payments come September. At the very least, the additional reprieve provides borrowers with more time to plan.

But plan for what, exactly?

Is there an end game?

Forgive student debtors for being doubtful: The government labeled last August’s extension as “final,” but that has been followed by several more.

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

Some experts are skeptical.

“This feels 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 could be likely. He also raised the question of whether the Biden administration will ever resume payments. “They’re not going to resume at the end of August to make voters repay right before the midterms,” Kelchen says. “And then, at that point, the re-election campaign starts.”

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.

“If they had [extended] it through the end of the year, some people might take that as, ‘he only did it to get through midterms,’” Mayotte says.

Too much? Not enough?

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 Student Borrower Protection Center advocacy group. “I think this is the clearest sign yet that big things are coming,” he adds.

The extension “does not make sense if you decouple it from the broader conversation around student debt cancellation and student loan reform,” says Pierce, adding that the timing of the extension’s expiration does tee up the possibility of debt cancellation weeks before voters head for the polls.

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.

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

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

Is it time to get back to normal?

Republican lawmakers, meanwhile, have criticized both the extension and their Democratic colleagues’ calls to cancel 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 previously introduced a bill to block another extension.

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.”

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

Buchanan adds, “In fact, we may be less ready just because you’ve burned through a bunch of resources to get ready and now all of those are wasted.”

Who needs a plan? Borrowers

Buchanan says he’s concerned 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 out and do it at the last minute, the worse our problems become.”

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.

Four months does give borrowers more time to, at a minimum, make a plan for payment to restart. Whenever that is.