What’s next for student loan cancellation, as told by 4 leading experts

BY Sydney LakeApril 12, 2022, 1:23 PM
Supporters of The Debt Collective convene at the U.S. Department of Education to demand full student debt cancellation, as seen in April 2022 in Washington, DC. (Photo by Leigh Vogel/Getty Images for MoveOn & Debt Collective)

The freeze on federal student loan payments has been extended—again. President Joe Biden’s announcement last week marks the sixth time that the due date for federal student loan payments has been pushed back since March 2020 at the advent of COVID-19.

On April 6, Biden announced that federal student borrowers would not have to make payments on their loans until Sept. 1. Before this extension, payments were set to resume on May 1. 

“To enable Americans to continue to get back on their feet after two of the hardest years this nation has ever faced, my administration is extending the pause on federal student loan repayments through Aug. 31, 2022,” Biden said in a statement. “That additional time will assist borrowers in achieving greater financial security and support the Department of Education’s efforts to continue improving student loan programs.”

While federal student loan payments remain on pause, top Democrats, student loan borrowers, and other advocates are continuing to push for debt cancellation. Fortune spoke to four student loan experts to get their take on what’s next for student loans.

Biden is ‘walking a tightrope’

Biden has lots of stakeholders to please in the debate on federal student loan forgiveness.

“President Joe Biden is walking a tightrope, with both the U.S. economy and lawmakers in Washington,” Sarah Foster, an analyst at Bankrate.com, tells Fortune.

While some borrowers still face financial hardship from the pandemic, critics say that “cooling today’s rampant inflation” could become more challenging now that federal student loan payments remain on pause, Foster explains.

“Biden’s solution with forbearance is essentially the middle road between the twin shoals of federal debt and the more generous solution preferred by some members of his party: student loan forgiveness,” she says. “Government officials are the only ones who can end that will-they-won’t-they debate.”

The fairness of debt cancellation has also been controversial. Borrowers who have already struggled through loan repayment could feel as if it’s unfair that some people may “get off easy,” explains Michael Kitchen, a student debt expert with Student Loan Hero.

“On the other hand, those with heavy student burdens point out that earlier generations had a much smoother time paying for college, as tuition was much cheaper, and that the current situation threatens to impoverish a huge segment of young college grads,” he tells Fortune. 

Biden my offer more targeted loan forgiveness

Biden campaigned on forgiving up to $10,000 in federal student loan debt per borrower. Since taking office in January 2021, he’s canceled more than $16 billion in federal student loan debt, but it’s gone to targeted groups: borrowers with a total and permanent disability, public service workers, and borrowers who attended defunct institutions.

“There may be more of these individual relief measures before we get to any kind of mass cancellation,” Kitchen says.

Robert Farrington, founder of The College Investor, also points out that Biden’s latest announcement about the freeze extension includes targeted relief for defaulted and delinquent borrowers through a “fresh start.” This means that defaulted loans will be placed back into “current status” when payments resume, ultimately helping about 8 million to 10 million borrowers who were in default or delinquent before the pandemic.

“We don’t believe Biden can forgive student loans en-masse with an executive order,” Farrington tells Fortune. “But he can continue to provide some targeted relief.”

There are alternatives to debt cancellation

Polling suggests the public would be even more receptive of free community college or free tuition to public universities as opposed to mass student debt cancellation, according to Brian Powell, co-author of “Who Should Pay?” His book, co-authored by Natasha Quadlin, addresses public attitude about whether parents, students, or the government should be responsible for funding higher education.

“The polls that have been done on loan forgiveness and on loan deferrals suggests that more Americans are in favor of those things than they are opposed, but the amount of support for that is less than the support for free tuition or free tuition at the community college level,” Powell tells Fortune. Free tuition would be “something that would have a longer-lasting effect.”

Borrowers could receive further freeze extensions

There’s a good chance that there could be further extensions on the freeze, Kitchen says. With the current payment freeze scheduled to let up at the end of August, that puts borrowers on track to have to make payments only a couple months before midterm elections. 

For now, the current extension is buying more time for loan services to communicate with borrowers about payment resumption. 

“Frankly, communication from the Department of Education and loan services about all of the relief measures has been terrible and poorly executed,” Farrington says. “Hopefully this latest extension allows for them to not only communicate better, but set into place a media strategy to get the message out to borrowers who need help.”

Foster reminds borrowers, though, that “no one can say with absolute certainty what will happen with forbearance.” As of mid-April, the forbearance period will end on Aug. 31.

“That means students shouldn’t hold out for their debt to be canceled and instead use this extra four months wisely to brainstorm a game plan,” Foster says.

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