Payments on student loans have been paused for more than two years amid the COVID-19 pandemic, and getting borrowers back on track to pay down their debt is going to be a big challenge.
"President Biden has been quite thoughtful and considerate about extending [the payment pause] … [but] there still are challenges people face in the wake of the pandemic in the economic situation," Federal Student Aid (FSA) Chief Operating Officer Richard Cordray, the nation's top student loan official, told Yahoo Finance in an exclusive interview this week (video above). "Having said that, there is no question that people have gotten out of practice at repaying their student loans."
The payment pause on federal student loans was recently extended through August 31, 2022. The pause was set to expire after May 1 after being enacted by former President Donald Trump amid the coronavirus pandemic in March 2020 and extended multiple times by President Biden.
The president is also hinting at the potential for broad-based student loan forgiveness in the coming weeks.
Many borrowers have used this period to reallocate payments towards other areas such as rent, groceries, or investing.
And so borrowers have "gotten maybe a little complacent about the fact that they haven't had to repay their student loans," Cordray continued. "When that changes, when they go back into repayment, there's going to be a big adjustment for people, and we're worried about whether people will easily adjust back to paying out money which nobody ever likes to do on an obligation that maybe they feel there should have been loan forgiveness or whatever it might be in their minds."
Recent research from the New York Fed estimated that student loan borrowers benefitting from the interest-free pause are expecting pain whenever the pause ends.
Cordray said that it's hard for the FSA to model such an unprecedented situation, where a moratorium has been placed on payments for more than two years.
In any case, he stressed that the FSA was going to work "carefully" with student loan borrowers to communicate the end of the payment pause well.
"We've been working to do that for months and months now, to make sure that if we do find people are falling into delinquency, or getting behind on their payments, that we communicate aggressively with them and make them understand what their options are if they're having trouble financially," Cordray explained.
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Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected]. Follow her on Twitter @aarthiswami.
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