The U.S. Department of Education announced the Biden-Harris Administration’s decision to extend the pause on student loan repayment, interest, and collections for another 90 days, on Dec. 22. This latest update to the Administration’s policy is in response to the surge and impact of the Omicron variant.
According to the national Federal Student Aid Office, the details of these relief measures are as follows: a suspension of loan payments until May 1, a zero percent interest rate on eligible aid, and the suspended collections on defaulted loans. In response to this decision, The Outlook asked its Leon Hess Business School faculty for their input.
Robert H. Scott III, Ph.D. said, “Honestly, with the remote possibility that the government will write-off student loan debt, people are smart to postpone paying right now. While I am not completely certain, there are no apparent costs associated with the student loan payment pause.”
Nonetheless, Scott was careful to consider the possibility of students getting comfortable with the extra disposable income in lieu of monthly loan payments. “If people want to prepare for paying again then they would be smart to save the same amount they were spending on student loans and put it into a savings account (or somewhere that will earn interest). Unless, of course, they absolutely can’t afford to do that (unemployment, illness, etc.),” explained Scott.
Professor Jeffrey Christakos, MBA, CPA, had a similar mentality to that of Scott. “Many people will use this pause to establish new spending patterns which may limit funds available for future required payments. Best advice is to keep the payments rolling. You will be happy when the loans are paid off,” said Christakos. However, Christakos mentioned the possible benefits of paying one’s loans without the additional interest. “I know that payments are not required but if you are able to make payments, they will be applied directly to the outstanding principal balance. If you make enough of them, you should be able to significantly reduce the total number of payments you will make over the life of the loan.”
Nevertheless, these decisions are best made on an individual basis, Scott said, as everyone’s situation is different. “I have a friend whose wife is always concerned about her $250,000 in student loans. But she’s a psychiatrist and makes over $250,000 per year. So, I always tell her, as long as you’re paying it off then you will get more than twenty times $250,000 from your education, which is a great return on her investment! However, someone who isn’t a doctor might find $50,000 is more debt than they can handle,” elaborated Scott. This scenario sheds light on the uniqueness of every student, and their relationship with college-related loans.
Professor Richard Roberts, MBA shared his input, “The beneficiaries of an extended ‘blanket’ student loan pause or across-the-board forgiveness would include students that arguably— certainly in a relative sense—may not need the assistance. In turn, it may be prudent to target any extended pause or forgiveness program to those that need it most—generally, lower-income students.”
As the professors seem somewhat torn on the issue, the same is said for the students of Monmouth. Sabrina Strekman, a junior marketing student, said, “The pause could definitely be useful and hurtful at the same time. Students have the option to have a bit more spending money, but this poses the risk of students becoming careless. At the end of the day, unless Biden cancels student loans altogether, we will have to pay them back eventually, and too long of a pause could make loans less of a priority for people.”
Scott concluded, “In truth, student loans are not an efficient or effective system for financing college education, but for now it exists.”
