When will be the right time to stop the student loan payment pause? It’s going to be difficult to find a good time when borrowers feel ready to pay them, and stopping the pause could be unpopular politically:
Hello and welcome back to MarketWatch’s Extra Credit column, a look at the news through the lens of debt.
But for millions of borrowers, the pause has provided benefits beyond helping them cope with the immediate and public health threat of COVID-19. To proponents of broad student debt reform, who advocate for mass cancellation, borrowers’ anxiety over resuming payments is an indication of the financial challenges student debt posed even before pandemic.
“I’ve heard a lot of testimonials from people saying how great this was for them personally,” said Jason Delisle, a senior policy fellow at the Urban Institute, a think tank. “I’m not sure that’s the right measure. What they’re saying is, ‘I have more money today than I had yesterday. That’s a great thing.’ The question is could you have afforded to pay the loan. We have a whole system for sorting that out.
Though Gauthier has been working towards getting relief through a loan forgiveness program for public servants, her experience with the student loan system doesn’t make her confident the nearly $30,000 she still owes will disappear any time soon. “I’ve been paying on my student loans for decades, just the very notion that I still carry this burden at this point in my life — it just feels daunting,” she said. “It feels a little bit like it will never go away unless someone does something drastic.
“People with the loan balances who wanted to see this extended, sadly they had Omicron to thank,” said Claudia Sahm, a senior fellow, at the Jain Family Institute. “That’s alarming and it doesn’t suggest that things are going to go smoothly,” he said. Pierce added that the Biden administration had put some steps in place — such as allowing borrowers to get into affordable payment plans over the phone — aimed at smoothing the transition. But if the system wasn’t ready those efforts could be put in jeopardy.
Buchanan said his members were in the process of hiring thousands of call center representatives in order to meet what they expected would be increased call volume come February 1. “We’re spending money hiring people who now have nothing to do,” he said. In some cases, servicers may let those workers go, or at least pause their training, he added.
“As long as the pandemic remains a presence in American life, support for economic policies that respond to the pandemic will be popular,” said Ethan Winter, senior analyst at Data for Progress. The push from advocates and lawmakers, including Democratic Senators Chuck Schumer and Elizabeth Warren, to extend the payment pause came at a time when the Biden administration was facing other political headwinds. After months of negotiations, Senator Joe Manchin said he couldn’t support Build Back Better, effectively killing Biden’s social spending package.
And indeed at least one prominent economist, Larry Summers, took to Twitter TWTR, +1.73% to to deride the decision to extend the payment freeze, saying that low unemployment combined with strong household balance sheets for many Americans means “there is no special case for across the board relief now, unlike when it was put in place two years ago.”
Even among borrowers with jobs, 89% of them weren’t ready for payments to resume in February. That’s according to a survey of 33,000 borrowers conducted by the Student Debt Crisis Center, an advocacy group, and Savi, a company that helps borrowers manage their student loans. On balance, this kind of evidence suggests that borrowers won’t be ready to restart repayments, even when the immediate threat of the pandemic subsides.
A sign that broader reform is on the horizon Both advocates and skeptics of broader student loan reform are taking the extension as a sign that the system may not return exactly to the way it was before. When asked during an appearance on CBS’s Face the Nation whether the administration needed to deliver on Biden’s campaign promise to cancel $10,000 in student debt per person, Harris said the administration had to “figure out how we can creatively relieve the pressure that students are feeling because of their student loan debt. Yes.”
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