Millions of borrowers left wondering about student loan payments restarting as May 1 nears
Payments on federal student loans are set to kick back in for roughly 37 million borrowers in just over a month. But with the May 1 end of the payment pause rapidly approaching, signals have been mixed on whether that deadline will be extended, leaving millions of borrowers in limbo with financial preparations.
Payments on federal student loans were first halted in spring 2020 as the coronavirus pandemic plunged the country into an economic crisis. Since then, it has been extended multiple times, most recently by President Biden last December, when it was pushed to the current May 1 restart date.
"I think it's still up for grabs whether payments will be turned on or not," said Natalia Abrams, president and founder of the Student Debt Crisis Center. "If in fact they are, borrowers are not ready to resume payments."
Last year, there were several rounds of communications ahead of the planned restart to help prepare borrowers — even though in the end the pause was extended.
The Department of Education has said it will continue communicating directly with borrowers with clear and timely updates about repayments. The CARES Act requires at least six notifications about payments restarting, but those could all go out between now and May. With the new deadline looming, there are concerns.
"Most borrowers we have spoken to have not received any communications since near the end of January about loans restarting," said Abrams. Without a clear decision, borrowers have been left confused. "If they're going to pause payments again, they need to do it sooner than later so people can balance their home budgets."
At the beginning of March, White House Chief of Staff Ron Klain told Pod Save America a decision on any executive action for student debt forgiveness would be made before the payments resume or the president would extend the pause. When asked about forgiving student loan debt on CBS Mornings earlier this month, Education Secretary Miguel Cardona said forgiveness is one thing but fixing the "broken system" is something they're working on as well.
"You don't really want to restart repayments and then a few months later forgive the loans," said student loan expert Mark Kantrowitz. "So they really do need to figure out what the game plan is and then execute on it."
Multiple Democratic lawmakers have raised concerns about preparations for the repayment restart or have called on the Biden administration to extend the pause.
More than 43 million borrowers have more than $1.6 trillion in student loan debt, according to Education Department data. Nearly 37 million of those borrowers have not been required to make payments on their loan in two years — which amounts to $195 billion in waived payments through April, the Federal Reserve Bank of New York found.
In a recent survey by the Student Debt Crisis Center and Savi, 92% of fully-employed borrowers were concerned about being able to afford their payments due to rising inflation when the pause in May ends. One in three borrowers claimed they've reduced spending on necessities like food, rent and healthcare in preparation for payments to resume.
"The pandemic relief has helped people survive the economic shocks of the pandemic, but their financial situation remains the same if not worse because of inflation," said Cody Hounanian, executive director of the Student Debt Crisis Center. "So restarting payments would be a disaster."
When the pandemic hit, nearly 100% of direct federal loans were in forbearance. As a result, previously delinquent loans – those behind on payments, but not in default – were marked as current. The New York Fed analysis warned when forbearance ends, direct borrowers are likely to experience a "meaningful rise in delinquencies" for both student debt and other debt.
"I think the Federal Reserve Bank of New York report was a little bit alarmist," said Kantrowitz. "There are going to be some borrowers who are going to be late with their payments just like there were before. The question is, are there going to be more of them?"
As the payment pause deadline closes in – student loan experts have said borrowers should focus on their budgets in preparation. They should also make sure that their student loan servicers have their most up-to-date contact information.
For those facing continued financial difficulties, there may be other options including deferments, forbearances and income-driven repayment plans for borrowers even after the federal pause ends. Such options should be discussed with a borrower's student loan servicer.
Borrowers will have each already had about $5,500 canceled by May 1, thanks to loans not accruing interest during the pause. The Committee for a Responsible Federal Budget, which has called for the student loan payments to resume, found that will cost the U.S. more than $100 billion. They estimate extending the pause would cost an additional $50 billion per year.