February's student-loan-payment restart will run into a 'psychological hurdle' as many borrowers thought their debt would be forgiven, Biden official says
Federal Student Aid Director Cordray mentioned the challenges of restarting student-loan payments.
He spoke of the "psychological hurdle" for borrowers who thought their debt might be forgiven.
The payment pause's final extension is set to lift in February, but many borrowers aren't ready.
In February, student-loan borrowers are expected to once again start making regular payments on their debt - and they're not ready.
The student-loan-payment freeze during the pandemic has been extended three times to give borrowers additional financial relief. But the most recent extension through February is final, and a top Education Department official warned that the payment resumption would be especially challenging for borrowers who were led to believe their debt would be forgiven.
Richard Cordray, the director of the Education Department's Federal Student Aid office, spoke with the Education Finance Council last week about challenges the department was facing in higher education. He said, in remarks obtained by Politico, that transitioning tens of millions of student-loan borrowers back into repayment would be a significant challenge, and that the multiple extensions of the payment pause sowed "tremendous confusion about what even the immediate future may hold."
"At the same time, borrowers have been hearing a steady drumbeat about the possibility of loan forgiveness, either wholesale or piecemeal," Cordray said. "The old saying is that 'the wish is father of the thought,' and we can expect that many, many borrowers will not be eager to return to repayment when they have been led to believe, or even to hope, that was never going to happen. Getting over that psychological hurdle with millions of Americans may be a much harder job than we know."
The payment pause was first extended under President Donald Trump's CARES Act last March, and President Joe Biden extended it two more times since he took office, accompanied by a campaign promise that he would cancel $10,000 in student debt per person. Since then, he has canceled about $9.5 billion in student debt - less than 1% of the $1.7 trillion student-debt crisis - for targeted groups of borrowers, with no word on where wide-scale debt cancellation stands.
Cordray stressed that borrowers have "grown accustomed" to not making payments on their student debt for almost two years, and that many were still unprepared to jump back into monthly payments with the pandemic still in effect.
"The stakes are extremely high as we now proceed to change everything once again - for borrowers who may not like what they are hearing from us, may not believe what they are hearing from us, and may not be prepared to cope with what they are hearing from us," Cordray said.
FSA plans to launch a communications campaign, Cordray said, to help ease borrowers back into repayment, including outreach via email and social media and updated sections to the student-aid website.
But even with FSA's acknowledgment of repayment challenges, many borrowers know they won't be able to pay off their debt come February. Insider previously spoke with Gwen Carney, a 61-year-old single grandmother raising three grandchildren, who said she's "really not looking forward to February at all."
"Restarting payments makes me very anxious because I somehow have to find that extra $200," Carney told Insider. "I just don't have it."
Alexandria Mavin, another student-loan borrower, told Insider that the pandemic payment pause allowed her to pay off her medical bills from giving birth, and she saw student-debt cancellation as the only way out of the "never-ending cycle" of repayment.
Massachusetts Sen. Elizabeth Warren and Senate Majority Leader Chuck Schumer are leading the push for Biden to cancel $50,000 in student debt per person, remaining adamant that he can do so immediately by executive action.
"The president has the power to cancel $50,000 in student loan debt right now," Warren previously told Insider. "Senator Schumer and I are going to continue to push for this, but Biden doesn't need any authorization from Congress. He needs to pick up the pen and do it himself."
Do you have a story to share about student debt or student-debt cancellation? Email Ayelet Sheffey at email@example.com.
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