'Chronically struggling' student-loan borrowers need more than a payment pause that postpones 'a day of reckoning,' a Philly Fed survey says

• The Philadelphia Fed released an analysis on the student-loan payment pause and forgiveness.
• It found the pause on payments is not sufficient to help borrowers chronically struggling with payments.

Putting a pause on student-loan payments isn't much help to struggling borrowers, a new Fed report found.

On Friday, the Philadelphia Federal Reserve released an analysis of survey results on student-loan repayment and cancellation. Using a national sample of 13,423 consumers from the Fed's Consumer Finance Institute, the analysis found the more than two-year pause on student-loan payments is not sufficient to help the over one-fifth of "chronically struggling" borrowers who were making no or partial payments prior to the pandemic and don't see that changing once the payment pause ends.

"These borrowers would benefit from a more comprehensive solution than simply extending blanket administrative forbearance," the analysis said. "That is because their ability to afford payments has not materially changed since before the pandemic."

"In other words, for some borrowers, additional forbearance extensions are simply postponing a day of reckoning with loan payments that are unaffordable," the analysis added.

President Joe Biden has extended the pause on payments four times since he took office, with payments now set to resume after August 31. But for the duration of the pandemic, numerous reports detailed how even with the pause, borrowers would not be financially prepared to foot another monthly bill. For example, a Student Debt Crisis Center survey in February found 92% of fully-employed borrowers were worried about restarting payments amid rising inflation, and 27% said they would never be ready to resume paying off their debt again.

The Fed recommended that the Education Department consider policies that reduce debt for future borrowers, like increasing the use of grants over loans for more low-income students and strengthening implementation of income-driven repayment programs.

And when it comes to broad student-debt cancellation, the Fed found 86% of respondents with student debt supported some form of debt relief. Among that group, most of them preferred targeted relief, with 28% of them preferring income caps and 17% preferring forgiveness based on assets or outstanding debt balances.

As of now, it's unclear what type of relief Biden will actually implement. He recently said that while he is not considering $50,000 in forgiveness per borrower, which many progressive lawmakers had hoped for, he noted a decision on forgiveness will be made in the coming weeks. And his Press Secretary Jen Psaki said during a Thursday press briefing that while targeting relief to those making under $125,000 is something Biden considered on the campaign trail, it "necessarily" related to the final policy decision he'll make.

But some Democrats want borrowers to get relief soon — and for all of them.

"Now is not the time for half measures, extensions or patchwork solutions," eight state attorneys general recently wrote in a letter. "Now is the time for decisive action."