Did student borrowers get a Christmas present from the administration?

Last month, 41 million student borrowers received what they may interpret as an early gift from the Biden administration. The announcement extended the pause on student loan repayments through May 1, 2022. For months, borrowers, servicers, and financial aid offices have been communicating with student loan borrowers that the final pause on payments would end in January. While some will undoubtedly celebrate another few months of payment reprieve, I can’t help but think that this decision has left our entire system worse off than it would have been if payments had resumed.

First and foremost, this payment pause is truly unnecessary as safety nets already exist within student loan repayment options. Though far from perfect, the student loan system has protections in place for low-income borrowers and unemployed borrowers.

In December, The Department of Education entered discussions to revamp income-driven repayment last month and stalled when representatives from colleges, professional organizations and students all wanted greater leniency than the department. These protections come in two forms. The first is income-driven repayment (IDR) plans available since 1994. IDR plans have grown and expanded, with five of the current eight plans being income-based. All offer payments as low as $0. All plans offer unemployment deferments that allow borrowers to postpone payments on their loans temporarily. 

If we had leveraged the system currently in place, those who were most impacted by the financial disruptions of COVID-19 could have accessed the IDR and deferment options presently available to pause or reduce payments. At the same time, those unimpacted borrowers continued to make payments creating more stability within the system.

If after 15 years and five attempts to design income driven repayment the Department of Education still has a system so faulty that payments must be delayed again — one starts to question how effective the federal government is at being banker to the nation’s youth on the path to college. 

Servicers and school’s authority is undermined 

President Biden’s announcement is truly an about-face to what the Department of Education, loan servicers and financial aid professionals have been preparing students for. The Department of Education has outsourced processing the federal aid system to colleges on the front end and servicers on the back end. Financial aid professionals are tasked with increasing access to federal dollars while enforcing complex and archaic regulations. And, to assist the department and servicers in a difficult time, they began to inform students that loan repayments would begin in early 2022. These professionals need to establish authority and credibility quickly and efficiently with students. This is hard to do when the rules of the financial aid game continue to change. Decision-makers appear to be clueless to the uncertainty and lack of credibility that is generated when shifts of this magnitude get made. The potential of causing more harm than good to the very student borrowers who are meant to be helped increases with every last-minute change in direction. Who and what are borrowers to trust going forward? 

Borrowers do not know what to believe or how to plan 

Though the payment pause has been well-intentioned, its hasty implementation and lack of planning have left student borrowers reeling. They do not know who to believe or how to plan for their future. Students who have left school are unsure when payments will resume. The created uncertainty makes it very hard for people to plan and ensure they are appropriately budgeting for payments to resume. The whiplash caused by slamming on the breaks so many times may discourage borrowers from planning altogether.

And what about current students who are deciding how to pay for their next semester or year of college? Does the continual delay of student loan payments send the wrong message about the loans they are currently taking? Is it setting false expectations that the loans they are taking will never come due?

Financial friction has long been a challenge for students who are financing college — one of the most expensive purchases of their entire life. This friction is the No. 1 reason students do not enroll and or complete college. One of the top contributing factors to this friction is the complexity of the funding system currently in place and the lack of transparency or certainty this complexity causes. Past and present students are owed an easier and more transparent financing system that they can trust. The stops and false starts of student loan payments suggest a system that conflicts with itself. Well-intended choices have created a chasm of trust between borrowers and the servicers hired to support students through loan repayment. This “gift” to the 41 million borrowers will likely just make it more difficult to achieve financial success. 

 Amy Glynn is vice president of Student Financial Success at CampusLogic and co-author of “Student Financial Success: A Surprising Path to Fix the College Completion Crisis.”