What Does This Mean For Borrowers
Borrowers now have until Aug. 31 before payments restart on their federal student loans. The moratorium had been set to expire in May, though the administration had signaled in March an extension was possible.
Borrowers seeking more information about their loans and the pause should visit StudentAid.gov.
Interest on federal student loans will also remain at zero, and collection efforts for past due debts will stay on hold for 41 million Americans with federal student loans.
WANT STUDENT LOAN FORGIVENESS? Millions of jobs qualify for updated program and yours might be one of them.
The Education Department will allow all borrowers a chance to restart payments without impact from previous penalties from overdue payments, according to a news release.
“The Department of Education is committed to ensuring that student loan borrowers have a smooth transition back to repayment, said U.S. Secretary of Education Miguel Cardona. This additional extension will allow borrowers to gain more financial security as the economy continues to improve and as the nation continues to recover from the COVID-19 pandemic.”
The agency also said it would continue providing relief to borrowers whose universities defrauded them. It also said it would streamline the Public Service Loan Forgiveness program, a government initiative meant to offer debt relief to those working in the public sector.
The Student Loan Payment Restart Was Delayed Heres What To Do
Payments are now on hold until May 1. President Biden wants borrowers to get into more affordable payment plans if they need to.
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The reprieve that federal student loan borrowers received almost two years ago is getting a little longer.
President Biden has extended the timeout to May 1, so almost 27 million borrowers with federal student loans will no longer be expected to restart their payments in February.
Those loans have essentially been frozen in time since March 2020 because of the pandemic. Most federalborrowers havent had to pay a bill, their loans stopped accruing interest, and those in default received a break from collections.
Mr. Biden asked borrowers to prepare for payments to resume. In a statement, the Education Department said the pause would provide additional time to ensure their contact information is up to date and to consider enrolling in electronic debit and income-driven repayment plans to support a smooth transition to repayment.
Thats good advice, especially if the upheaval of the past two years means your personal circumstances and financial life look entirely different today. If youre anxious about making payments again, you have plenty of options and now is the time to thoroughly evaluate them.
Heres what you need to know about the restart and the payment plans that might help you.
Public Service Loan Forgiveness
If you work a full-time job for a U.S. federal, state, local, or tribal governmentor a not-for-profit organizationyou could be on your way to student loan forgiveness. You’ll need to make 120 payments, which don’t have to be consecutive, to qualify.
This option isn’t for the recent graduate because it takes at least 10 years to earn. You’ll need to have a federal direct loan or consolidate your federal loans into a direct loan.
This program has been plagued by problems. The government created the PSLF program in 2007, and when the first borrowers became eligible for forgiveness in 2017, a significant controversy emerged. A year after the first round of borrowers gained eligibility, almost all of their applications had been denied. Many borrowers were being denied the forgiveness they had earned over technicalities. Some discovered their loan servicers had misled them about their eligibility. As of June 2021, only 5,500 borrowers had gotten their loan balances discharged under the program.
Temporary Expanded Public Service Loan Forgiveness might help you if your Public Service Loan Forgiveness application was denied. TEPSLF grants qualifying borrowers the forgiveness they were denied under PSLF, but only until the program runs out of funds.
Many of the previous requirements for PSLF are waived as part of the change, with two key requirements remaining:
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Student Loan Forgiveness Could Still Happen
Despite improvements to the economy since the pause on federal student loan bills was first announced in March 2020, President Joe Biden has said it remains too early to ask borrowers to begin paying again.
“We are still recovering from the pandemic and the unprecedented economic disruption it caused,” Biden said, in an April 6 statement announcing the latest pause.
Nearly 66% of likely voters are in support of the president forgiving student debt, with more than 70% of Latino and Black voters in favor, a recent poll found.
White House chief of staff Ron Klain said last month the administration wanted to come to its decision on loan forgiveness before turning payments back on.
“The president is going to look at what we should do on student debt before the pause expires, or he’ll extend the pause,” Klain said on the podcast “Pod Save America” in early March.
Biden Extends Student Loan Payment Pause Until May
It was set to expire at the end of January.
President Joe Biden announced on Wednesday that he would extend the pause on student loan repayments through May ahead of the temporary policy’s expiration at the end of January.
Since March 2020, tens of millions of Americans have been able to hold off making regular payments on their federal student loans thanks to a pause, put in place first by the Trump administration, in response to the pandemic.
When he became president, Biden extended the pause through September, and in August, he extended it again until Jan. 31, 2022, calling that a “final extension.”
But Democrats on Capitol Hill pressured Biden to extend the pause again as the pandemic stretched on.
“We know that millions of student loan borrowers are still coping with the impacts of the pandemic and need some more time before resuming payments,” Biden said in a written statement on Wednesday.
“Given these considerations, today my Administration is extending the pause on federal student loan repayments for an additional 90 days through May 1, 2022 as we manage the ongoing pandemic and further strengthen our economic recovery,” Biden said.
“Meanwhile, the Department of Education will continue working with borrowers to ensure they have the support they need to transition smoothly back into repayment and advance economic stability for their own households and for our nation.”
He said Vice President Kamala Harris has been “closely focused on” the issue.
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How Does Student Loan Payment Suspension Impact Borrowers
Since payment suspension is meant to protect borrowers, there are a few provisions in place to ensure this program doesnt cause unintended harm to those its meant to help. Although student loans are notoriously some of the most unforgiving types of loans, skipping monthly payments during this COVID-19-caused reprieve wont hold the usual consequences for borrowers.
Notably, interest has not accrued on existing student loans during this non-payment period. The suspension is a true pause on both interest and payments something thats relatively unheard of, especially given just how crushing student debt is for so many Americans. When payments resume, borrowers will owe the same principal amount, and have the same accrued interest, they owed before the payment suspension began. For most traditional payment plans, loan terms will be extended for the length of time that pandemic protections lasted.
However, not all repayment programs work in the same way. For example, some borrowers are enrolled in programs wherein the total number of months spent actively making payments earns them loan forgiveness. The Public Service Loan Forgiveness program is one such initiative, but there are also various income-driven loan forgiveness programs. Although payments are not due during this pause, the months still count in the borrowers favor when it comes to these forgiveness programs.
How Long Are Student Loans On Hold For
Congress passed the pandemic-inspired CARES Act, which initially brought repayment to a halt in March 2020. The latest extensions take eligible borrowers through the end of summer of 2022, a penalty-free break from payments spanning nearly two and a half years .
The Biden Administration most recently extended the repayment suspension and interest freeze on April 6. There have also been recent signs that the White House was seriously considering bypassing a divided Congress with a mass debt forgiveness initiative. Most notably, Bidens chief of staff, Ron Klain, said in a that it remained a possibility.
Federal student loans have remained on hold because of a few factors. These include:
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Pressure For Bigger Moves
Progressive Democrats are already putting the pressure on Biden to go bigger and cancel billions of dollars in student loan debt altogether. Senate Democratic Leader Chuck Schumer and Massachusetts Democratic Sen. Elizabeth Warren have called for forgiving $50,000 in student loan debt per borrower, arguing that it would provide relief to millions of people struggling due to the pandemic, stimulate the economy, and help close the racial wealth gap.
Warren has argued that the secretary of education has the authority to cancel federal student loans, a claim backed up in a memo from lawyers at Harvards Legal Services Center and its Project on Predatory Student Lending.
Former Education Secretary Betsy DeVos was staunchly against Democrats debt cancellation proposals, recently criticizing politicians for advancing the truly insidious notion of government gift giving in remarks at a federal student aid conference.
But Biden may be reluctant to wipe away debt unilaterally and prefer the move be approved by Congress. It would be an unprecedented move and one that may not have the support of more moderate members of the Democratic Party. A study from the Committee for a Responsible Federal Budget found that canceling student debt would provide a relatively small boost to the economy and that most of the relief would go to those with higher incomes who tend to have more debt.
I Was Behind On My Payments What Are My Options
Theres good news for delinquent borrowers, too: You get a fresh start.
You will be current, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, an industry trade group. Their delinquency was removed.
That should remove the pressure for borrowers who were in danger of falling into default, which happens if youre 270 days behind. If you had been delinquent, find out what your payment is expected to be, and if you cannot afford it, consider enrolling in a different repayment plan that will lower your bill.
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Why Its A Bad Idea To Pay Now If You Are Going For Student Loan Forgiveness
If you are going for student loan forgiveness, your objective is to minimize your monthly payments as much as possible. While payments and interest are on hold, each of these months will count as credit toward your forgiveness track even if you’re not actually paying any money . For those pursuing PSLF, all you need is qualifying employmentfull-time employment at a non-profit or 501for these months to count as credit.
At this point, youre not required to make a monthly payment on direct federal student loans. This means you shouldn’t put money toward your federal loans unless you are trying to pay them off before you reach forgiveness. Each dollar you don’t pay to your loans is a dollar you can repurpose any way youd like, whether thats saving for retirement, saving for college, buying a rental property, or purchasing that dream home.
Making payments to your servicer now when youre going for forgiveness is like throwing your dollars into a black hole. Just remember, you want to MAXIMIZE your forgiveness at this point and not pay a penny more.
These months with $0 required monthly payments count toward those 120 payments just as much as those high monthly payments you were making pre-pandemic or those payments youre anticipated to make when your income jumps after training and when the student loan holiday ends.
The Latest Extension Was Issued To Make Transition Into Repayment Easier
The student loan payment freeze has been extended six times since March 2020, with each extension issued for economic reasons related to the COVID-19 pandemic. While the economy is recovering, the press release says that President Biden has made clear the continuing need to respond to the pandemic and its economic consequences, as well as to allow for the responsible phase-down of pandemic relief.
The extension will provide additional time for borrowers to plan for the resumption of payments, reducing the risk of delinquency and defaults after restart, the press release reads. The department also announced that it will allow federal borrowers with delinquent payments or defaulted loans to reenter payment in good standing.
As with previous extensions, the administration also promised that it would use this time to improve federal servicer accountability and oversight, which has been one of its biggest goals in 2022 following several reports of federal loan mismanagement.
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Student Loan Payments Unlikely To Resume Right Before Midterm Elections
Restarting student loan payments just two months before major national elections could be politically disastrous for Democrats. The November elections will determine which party controls the House and the Senate. Democrats currently hold only narrow majorities in both chambers, and the party that holds the White House typically loses seats in Congress in midterm elections.
A poll released last month by Data for Progress and the Student Borrower Protection Center showed that a majority of borrowers supported extending the student loan payment pause to at least the end of 2022. Another poll released by the same organizations similarly suggested that voters may be less likely to vote in the midterms if the administration fails to provide adequate relief to student loan borrowers.
What About Borrowers Who Are In Default
Borrowers in default will automatically be given a “fresh start,” according to a statement from the US Department of Education. Their accounts will be returned to good standing and any delinquency will be “cured,” allowing them to repair their credit and gain access to programs like income-driven repayment and Public Service Loan Forgiveness, which benefits those who work for nonprofits.
“During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs,” Cardona said in the statement.
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Student Loans Are On Hold Should You Pay Anyway
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Payments are currently suspended, without interest, for most federal student loan borrowers through May 1, 2022. This policy does not apply to private student loans.
» MORE:Federal student loans are paused until May 2, 2022
Borrowers can still make payments to lower their debt during this period of suspended payments, called a forbearance. According to the latest federal data, a total of 500,000 borrowers continued making payments during the pause. Contact your servicer if you have further questions.
Make no mistake: This is a pause on payments, not forgiveness. Your debt will be waiting for you when repayment begins at the end of the forbearance, unless the policy changes again. While the Biden administration has said it plans to push for expedited $10,000 forgiveness for all federal borrowers, few observers believe such a bill could be moved through Congress quickly.
Until then, heres how to decide what to do next.
Can Biden Forgive More Student Debt
While on the campaign trail, Biden said he’d support legislation canceling a minimum of $10,000 of federal loans per borrower. However, the White House has been largely silent on the issue since he took office, though the Department of Education made moves on this front in the last couple of months.
Following the department’s revamp of its Public Service Loan Forgiveness program in October, more than 750,000 borrowers have had their student loans extinguished, collectively reaching more than $18.5 billion of loan discharges as of May.
Then-White House Press Secretary Jen Psaki said in April that the president “has not ruled out” using executive action to cancel substantial amounts of student loan debt.
Whether he has the legal authority to do that without legislation from Congress is still unclear.
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