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.
Will The Student Loan Repayment Pause Be Extended Into 2023
There are many experts who think the USA’s student loan repayment pause could be extended past the August 31 end date.
Most of these experts expect it to run until around the end of the year or maybe into January.
“Our outlook assumes the federal student-loan payment moratorium will last until January 2023,” Anthony Noto, CEO of student-loan lender SoFi, reportedly told investors.
With midterms coming in November of 2022, such an extension could help the Democrats win votes, since this is a very popular policy.
However, an extension through all of 2023 is less certain. Despite some calls for complete student loan forgiveness, that is unlikely to happen, so the freeze will have to end at some point.
Therefore, a likely scenario when it comes to the question of the student loan repayment pause could be for it to be extended into the start of 2023, but to then come to an end at some point midway through next year.
Republicans Introduce Bill To End Student Loan Pause And Prevent Mass Student Loan Forgiveness
Last week, Republican Reps. Virginia Foxx, Elise Stefanik, and Jim Banks introduced legislation designed to get out in front of Bidens potential student loan actions.
The bill, called the Responsible Education Assistance Through Loan Reforms Act, would stop the ongoing student loan pause and would end student loan forgiveness for new borrowers under existing programs, including Public Service Loan Forgiveness and income-driven repayment plans. The bill would also expressly ban President Biden from cancelling student loan debt on a mass scale.
The legislation has little to no chance of passing the House and Senate, where Democrats hold slim majorities. However, the introduction of the bill is a clear sign that Republicans take seriously the fact that Biden appears to be moving towards enacting additional student loan relief for borrowers.
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‘another Payment Freeze Is Inevitable’
Earlier this month, White House press secretary Karine Jean-Pierre said Biden would make a decision on the student loan payment pause by the end of the month. The president has also said he’d announce how he plans to move ahead, if at all, with student loan forgiveness before then. He’s come out in support of canceling $10,000 for all borrowers, but is under intense pressure to deliver greater relief.
It’s now just two weeks before federal student loan bills are set to resume, and although there’s much speculation that another extension is likely with no plan to restart the payments in motion and the November midterms looming, the White House has said nothing else on the matter.
“The fact that they haven’t issued any guidance so close to the theoretical start date pretty much indicates yet another payment freeze is inevitable,” said Barmak Nassirian, vice president for higher education policy at Veterans Education Success, an advocacy group.
Ongoing Inflation Makes Student Loan Pause Extension And Other Relief More Likely
Biden administration officials have said throughout the year that economic and pandemic data would guide the decision process about a further extension of the student loan pause. And recent economic data on inflation is not looking rosy prices continue to increase across a number of sectors. And this months jobs report, while robust, suggests that the economy may still be running too hot, according to top economists.
Advocates for student loan borrowers have repeatedly warned that ending the student loan pause amidst soaring inflation could be disastrous for families. The current economic data could provide a clear justification for extending the relief, and potentially establishing new relief for borrowers, as well.
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Black And African American Borrowers
According to a January 2022 poll conducted by CNBC and Momentive, 68% of surveyed U.S. adults have some form of debt, including student loans. One in four Black adults has federal student loans, compared to 15%, 14%, and 11% for Hispanic, White, and Asian Americans, respectively.
Not only are Black and African American borrowers more likely to have student loan debt, but they also owe more on average. According to the Board of Governors of the Federal Reserve System, Black borrowers took out the largest average amount of federal student loan money in 2019 at $44.88 thousand, compared to $40.17 thousand and $30.89 thousand for their White and Hispanic counterparts, respectively.
Federal Student Loan Deferment Is Set To End On Aug 31 And Interest Will Start Accruing Again Heres What You Need To Know Before Your Payments Resume
Federal student loan payments have been paused since March 2020, but theyre set to resume on Sept. 1. Will President Biden extend the federal loan moratorium?
Federal student loan payments have been on hold since March 2020 as a result of the COVID-19 pandemic. The government also sent the interest rate for federal student loans to 0% during the pause. The payment pause only applies to borrowers with federal student loans.
Payments were supposed to resume in April 2022, but President Joe Biden extended the student loan deferment again until Aug. 31. Assuming the deferment isnt extended further, this will be the first time some federal borrowers have made payments on their federal loans in more than two years.
Federal student loan borrowers will also begin making interest payments once their regular loan payments resume. Unless you consolidated your federal loans during the deferment period, when your payments resume your interest rate will be the same as it was before the deferment period.You might consider refinancing your student loans after the payment pause ends. By visiting Credible, you can learn more about student loan refinancing and compare rates from multiple private student loan lenders.
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Biden May Extend Student Loan Pause To End Of 2022 Or Into Next Year
Payments on government-held federal student loans have been suspended since March 2020 under the CARES Act, which Congress passed in the early months of the coronavirus pandemic. The legislation also suspended interest accrual on government-held federal student loans, and stopped collections activities against defaulted borrowers.
Congress originally envisioned a six-month pause on student loan payments when it passed the legislation, but the relief has been extended several times by both President Trump and President Biden. August 31 is the latest deadline for the expiration of the student loan pause.
The Biden administration appears increasingly likely to extend the student loan pause yet again as Americans continue to grapple with historically high inflation. Last month, the administration reportedly notified student loan servicing companies contracted with the U.S. Department of Education to hold off on sending billing notices to borrowers, a clear signal that officials do not expect payments from borrowers in the near-term. Top officials from the Education Department and White House, including the Secretary of Education, have emphasized in recent months that borrowers would have plenty of warning before student loan payments resume.
What Happens To Borrowers Who Were In Default
Borrowers in default will automatically be given a “fresh start,” according to the US Department of Education. All defaulted accounts will be returned to good standing, and any delinquencies will be “cured,” allowing borrowers to repair their credit and access programs like income-driven repayment plans and Public Service Loan Forgiveness, a student loan relief program designed for borrowers who work for the government or nonprofit organizations.
Since the federal student loan payment pause began in March 2020, collections on defaulted debts have been put on hold.
In an , Secretary of Education Miguel Cardona said, “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.”
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The Student Loan Moratorium Deadline Is Approaching
At the onset of the Covid-19 pandemic, the Department of Education froze all federal student loan payments and interest from accruing, offering millions of American students relief during such difficult times.
Fast-forward to where we are today, with record-high inflation burdening the wallets of so many and some members of Congress calling for mass student loan forgiveness or even complete cancellation to aid in the economic recovery.
American voters seem to be split on the matter, with a recent YouGov survey indicating that 51% of respondents either strongly or somewhat support $10,000 in student loan forgiveness, while another 38% strongly or somewhat oppose it.
Moving forward, the Biden administration is well aware of the implications student loan forgiveness would carry, as it’s likely to have an impact on the upcoming election cycle. Because of that, it’s likely there will be some sort of decision made before the Aug. 31 deadline.
With that in mind, here are three things to consider if you currently have federal student loans.
What Will Student Loan Relief Do For You
There are three key benefits from the Biden plan:
- Debt forgiveness. For people earning $125,000 or less the plan will wipe out part of their debt balance. Most borrowers will have $10,000 in government student loan debt forgiven. For recipients of Pell Grants, the amount will be $20,000.
- Extension of the payment resumption deadline to December 31, 2022. Payments were originally scheduled to begin after August 31, 2022. Now borrowers have another four months.
- Easier income-driven payments. Borrowers can now apply for an income-driven repayment plan that will limit payments to 5% of income.
Heres the catch: you may not get these benefits automatically. Many borrowers will need to apply for them between now and when payments resume early next year. Over that same time, there are other steps you should take to get ready.
Below are 8 steps you can take to benefit fully from the student loan relief plan:
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As Biden Appears Likely To Extend Student Loan Pause Republicans File Bill To Restart Payments
WASHINGTON, DC – AUGUST 9: U.S. President Joe Biden speaks before signing the CHIPS and Science Act … of 2022 during a ceremony on the South Lawn of the White House on August 9, 2022 in Washington, DC.
The Biden administration appears to be increasingly likely to extend the student loan pause, which is currently set to end in just 22 days. Meanwhile, congressional Republicans filed a bill to end the student loan relief and restart payments for millions borrowers.
Heres the latest.
Private Student Loan Payments
Private student loans may have different interest rates and terms than federal loans. They frequently do not have a grace period while you’re in school. In addition, private lenders don’t report average student loan amounts to the government, so the data is harder to come by.
We applied a typical range for fixed interest rates across a few different loan amounts and terms. Typically, longer loan terms mean higher interest. Below, see how interest rates impact monthly payments. Keep in mind that payment amounts can change monthly for loans with variable interest rates.
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Will There Be Any More Student Debt Forgiveness
Judging by the length of time it took Biden to make a decision on widespread student loan debt forgiveness, it’s unlikely that any further forgiveness will be given to all student loan borrowers via executive order. It’s not clear yet if Biden’s current order to cancel $10,000 to $20,000 for all federal student loan borrowers will be challenged in court or if anyone even has the standing to file a lawsuit against it.
The political climate on student loan debt forgiveness is likewise murky: An Ipsos/NPR poll found that a majority of Americans approve of canceling $10,000 of student loans, but support for forgiveness decreased at higher levels of relief. In addition, 59% of Americans are worried that student loan forgiveness will make inflation worse. According to a separate CNBC/Momentive survey from early August, nearly a third of respondents opposed student loan forgiveness for anyone.
While further widespread student loan debt forgiveness is unlikely, the Department of Education continues to discharge loans of specific borrowers — the agency has canceled $32 billion of student loans during Biden’s term. Following temporary changes to the Public Service Loan Forgiveness program in October 2021, more than 175,000 borrowers have had their student loans extinguished, totaling more than $10 billion as of August 2022.
Federal Student Loans: What To Expect And How To Prepare For Payment Resumption
Federal student loan payments will resume at the end of January 2022. The U.S. Department of Education has made it clear that this is the last COVID relief extension. This means borrowers should be ready to make their first payment in February.
Here are some things you can expect:
Your student loan servicer will contact you about payments resuming.
You will receive an invoice at least 21 days before your first payment is due.
Your monthly payment due date should be the same you had prior to the COVID administrative forbearance.
Your payment amount should be the same if you were enrolled in an Income Driven Repayment plan unless you renewed or changed your payment plan during the suspended period. If you were enrolled in a Standard, Graduated or Extended Repayment plan, your payment amount may be different. Contact your servicer for more information.
Auto-debit payments should resume automatically.
Your loans will start accumulating interest starting February 2022 and any accumulated interest should not be capitalizedi.e., added to your principalunless you were in a traditional deferment or forbearance prior to the COVID relief .
If your loans were in default, collection activities may resume.
For more information on what to expect, click here.
Between now and February, here are some things you can do to prepare for student loan payment resumption:
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Do Private Loans Qualify For Student Loan Debt Forgiveness
Private loans do not qualify for any federal-government-sponsored loan forgiveness programs. However, private student loan borrowers may qualify for refinancing through independent financial institutions.
Your lender or servicer may offer forbearance and deferment options. They may also offer refinancing. Reach out to your loan servicer to find out what options are available to make your private student loan debt more manageable.
Student Loans: Borrowers Arent Ready To Resume Payments Former Fdic Chair Says
The expiration of the forbearance pause on federal student loans is fast approaching on August 31 an impending economic hardship for many borrowers, according to one expert.
Borrowers aren’t ready and servicers aren’t ready,” Sheila Bair, former FDIC chair and former president of Washington College, recently told Yahoo Finance Live . Borrowers haven’t had to make payments for well over two years. Their budgets have come to rely on not making those payments and you’re going to see some massive non-payment and delinquency rates go up and hurt credit scores.
Federal student loan debt is around $1.7 trillion. Resuming student loan payments will put stress on personal budgets post-accommodations, averaging as much as $244 per borrower, according to a recent Equifax study. The study also found that credit scores are more likely to decline and that delinquency and defaults will resume, especially among younger borrowers with less credit history.
The longer they’re in non-payment status, the harder it is to get a borrower to start paying again the worse it is going to get, Bair said. This is one of the things we learned during the financial crisis when we were trying to get mortgage borrowers with reduced payments to start repaying their loans.
Another option to tackle the student debt problem is to put caps on the amount students can borrow. Those caps existed before 2007, but were increased due to rising tuition.
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When Will Student Loan Payments Likely Resume And What Should Borrowers Do
Student loan payments will resume starting on Sept. 1, which leaves millions of borrowers waiting for word about whether they will have to begin repaying their student loans after a nearly two-and-a-half year break.
Because experts generally agree that the pause will be extended, its more a question of how long the pause will be extended. Farrington says a 60-day extension would put it right before the midterm elections, which seems politically too short. He says setting the deadline at the end of the year could be a possibility, but it might not be a good one given all the holidays.
I believe we will likely see an extension until Jan. 31, 2023, says Farrington. As to whether this will be the last one, its uncertain. I do think the administration is trying to extend the pause as long as possible so they can sort out any potential forgiveness plans or other student loan reforms.
Farrington adds that the president can continue to extend the pause as long as there is a state of emergency. As long as that continues to be extended, so can the payment pause, he says.
Right now is the time to assess your debt and find what forgiveness programs you are eligible for and if you arent eligible for forgiveness, you should identify what is the best and cheapest way to pay back your student loans, Aguilar says.