Borrowers, lenders left in limbo as deadline to extend student loan payment pause nears

WASHINGTON — With the pause on federal student loan payments set to expire at the end of the month and no announcement yet from President Joe Biden about whether he will issue another extension, borrowers and lenders are growing increasingly frustrated over the lack of clear policy direction.

Although most debt forgiveness advocates, policy experts and loan servicers don’t expect Biden to restart federal loan payments so close to the midterm elections, the White House’s drawn-out decision-making process has led to uncertainty for both borrowers trying to plan their finances and servicers who are unsure whether they need to start notifying loan holders about coming payments.

“Financial stress is the No. 1 stressor in people’s lives, and this is adding even more stress and confusion,” said Natalia Abrams, the president and founder of the Student Debt Crisis Center. “Education Secretary [Miguel] Cardona said he would give borrowers ample notice — we are now just three weeks away from a financial cliff.”

Biden has extended the federal student loan moratorium, which began under former President Donald Trump, four times. The White House hasn't said whether he will continue to extend it. The White House didn’t reply to a request for comment.

Debt forgiveness advocates say that inflation is already putting a financial strain on many borrowers and that Biden’s delayed announcement is unnecessarily contributing to peoples’ financial anxiety. Adding to the uncertainty is the lack of clarity about whether and when he will cancel some student loans.

“It is really confusing for borrowers and servicers 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 am I going to have to repay with cancellation looming?’”

Biden could announce a decision on the student loan payment pause by the end of the week, according to people familiar with White House discussions, but it’s unclear where he stands on debt cancellation. Biden said he would decide on student loan cancellation by the end of August.

Biden indicated this year that he was open to $10,000 of debt relief per borrower, but some debt relief advocates worry that he has cooled to the idea in part because of concerns about inflation.

He could extend the student loan moratorium until next summer, said a person briefed on the White House discussions.

Federal student loan holders haven’t had to make payments since March 2020, when Trump signed into law the CARES Act, which paused payments through September 2020 and stopped interest from accruing for the roughly 42 million borrowers.

Trump later took executive action to extend the deferral period through January 2021. Biden, on his first day in office, signed an executive order continuing it through Sept. 30. He has since issued three more extensions, the most recent of which expires on Aug. 31.

The moratorium doesn’t apply to borrowers with privately held loans.

The lack of guidance from the White House this close to the expiration of the moratorium has also made planning difficult for loan servicers, who are responsible for clearly communicating with borrowers about when their payments are due.

Scott Buchanan, the executive director of the Student Loan Servicing Alliance, said companies that administer student loans will have to proceed as if payments will resume next month even though the possibility remains increasingly unlikely.

To prepare, the companies have been hiring thousands of workers to manage what they anticipate will be questions from millions of borrowers once payments resume. If the loan payments don’t restart, many of those workers will be out of jobs, Buchanan said.

Buchanan said the loan administrators have been given no formal guidance from the federal government about when repayments will start and whether there will be any type of loan forgiveness. If they aren’t given an update in the next several days, the companies 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 that effort into something that 10 or 15 days before it’s going to happen, the government changes its mind,” Buchanan said. “There’s an enormous amount of wasted administrative costs. There are tens of millions of dollars that go into every time we ramp up to start and then don’t. It really is quite a waste of resources.”