Biden keeps student loan borrowers in suspense over payment pause

President Biden is keeping student loan borrowers in suspense over whether he'll decide to again extend a freeze on repayments with less than two weeks to go until the Aug. 31 cutoff date.

It’s the smallest window of time borrowers have had so far since the pause in federal loan repayments began at the start of the COVID-19 pandemic, with lawmakers and advocates pressuring the administration to make a decision that revolves around crucial financial planning.

“The stress and anxiety and frankly fear that borrowers are feeling right now, we feel it every day when we’re speaking to them. The very first question is: What do we know? What’s going to happen? What do I need to do to scrounge up money to pay for student loans next month?” said Natalia Abrams, president and founder of the Student Debt Crisis Center.

The delay in announcing a decision and the approaching midterm election raises questions over if the news will include more than a payment pause extension and potentially a long-awaited decision to forgive some amount of such debt.

The freeze has been extended six times since loan payments were first put on hold in March 2020 under former President Trump. The order froze the accrual of interest on federal student loans serviced by the U.S. Department of Education, effectively freezing $1.6 trillion in debt owed by more than 40 million Americans.

Education Secretary Miguel Cardona on Tuesday indicated a decision will be made “soon” on student loan repayments, but wouldn’t say whether the Biden administration plans to extend the pause.

The president said last month that “the end of August” is his timeline for making a decision –– potentially butting an announcement right up to the deadline –– but he’s otherwise kept his next move on student loans a mystery, leaving borrowers and advocates waiting largely in the dark.

“In an economy where millions of people continue to struggle financially amidst inflation and rising housing and rent prices, it’s beyond frustrating that President Biden has yet to provide a clear answer on student loan forgiveness,” said Carlos Moreno, senior campaign strategist with the ACLU, adding that it’s “long past time” for Biden to cancel student debt.

Braxton Brewington, spokesperson for the Debt Collective, said borrowers are tired of “playing red-light-green-light with their monthly bills and financial security” every time another payment pause deadline approaches.

“Dragging out a decision this long and so close to a deadline undermines tens of millions of Americans’ ability to make consequential financial decisions like whether or not they can save for retirement, afford medication or child care, and even pay their rent,” he said. 

Biden has also felt pressure from lawmakers. Last month, Sen. Bob Menendez (D-N.J.) led a letter signed by over 100 Democrats in Congress calling for Biden to extend the pause, citing the economic hardship some have faced due to the coronavirus pandemic, as well as the squeeze rising inflation has put on consumers nationwide.

Democrats and advocates have also pushed for the relief as a means to advance racial equity, while pointing to the disproportionate burden faced by borrowers of color, especially Black Americans, who experts say are more likely to borrow at higher rates and struggle with repayment.

Laura Beamer, lead researcher in higher education finance for the left-leaning Jain Family Institute, said that while all borrowers will feel some kind of impact from the ongoing moratorium or any cancellation, the effects would be most felt among Black borrowers.

“Black borrowers are going to feel more of an impact from any cancellation, from any extension for the moratorium, than their peers,” Beamer said. She added that the impact would also be more pronounced for those with “higher debt to income ratios, and those people are disproportionately hailing from disadvantaged groups and low socioeconomic status groups.”

During the 2020 campaign, Biden championed forgiving at least $10,000 in federal student loans per person. Over a year ago, he requested a memo from the Department of Education to determine his authority to forgive student debt through executive action, but the administration has not publicly announced if the memo is complete.

That hasn’t stopped the administration from approving forgiveness for billions in student debt.

Since Biden has taken office, his administration has greenlit over $31 billion in student loan relief for hundreds of thousands of borrowers. But that relief has only extended in certain cases, including for those who have attended schools found to have misled students, borrowers with disabilities, and those participating in the Public Service Loan Forgiveness program.

Biden announced in June that he would cancel nearly $6 billion in student debt for former Corinthian College students. The move came after the school faced immense scrutiny following lawsuits charging it with defrauding students, but the significant round of forgiveness immediately raised pressure on the White House to do more.

Progressives and advocates argue the actions by the administration prove Biden has authority to approve broader student loan relief. But whether he should has been a source of debate among some financial experts and lawmakers.

Many Republicans have come out against the push for widespread forgiveness as well as extensions to the current repayment pause, blasting the relief as unfair for Americans that didn’t attend college and claiming it would add fuel to rising inflation. 

By contrast, some experts have downplayed the effects of the payment pause on the decades-high inflation rates seen in recent months. There’s also been some pushback over how much of an impact a potential plan to approve $10,000 in student debt for certain borrowers would have on rising costs.

“The inflationary pressure that cancellation has, especially at an amount at $10,000, is going to be minimal,” Beamer said. She also noted that a chunk of borrowers take longer than 10 years to pay off their debt, which she argued eases the potential impact actions canceling student debt could have on inflation.

However, the borrower relief has also been targeted by budget watchers at a time the government has been facing pressure to cool off spending.  

Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, said the effects of extending a current pause on payments is “not gigantic.” 

“It's not large relative to the size of the inflation problem. But it's large relative to the president's tools to fight inflation,” Goldwein said, while also calling ending the payment freeze “one of the most direct and instantaneous tools that the administration has” to combat inflation.