The Biden administration announced Wednesday that federal student loan payments would be halted until August 31, which began in 2020 but was due to end later this month. This action is meant to help millions of borrowers regain their financial standing before they come back for payments.
Here’s more on the decision:
What does this mean for borrowers?
The extension gives Americans another four months to get ready to resume student loan payments. Borrowers will not be asked to make payments after August 31, and interest rates will remain at 0% during that time. Under the new action, those who were behind in making payments before the pandemic will automatically be in good standing. This is a change from the previous policy, which required borrowers in default to make nine consecutive loan payments and apply to get out of default. Education Secretary Miguel Cardona said the additional time would help his agency prepare borrowers for an “easier transition to repayment”.
Who is eligible?
The moratorium applies to most federal student loan programs, including the Direct Loan Program, which issues subsidized and unsubsidized student loans. This does not apply to private loans issued by banks or schools. The latest federal data shows that more than 43 million Americans have student loans totaling $1.6 trillion.
Why is it being extended?
The freeze has been extended several times as relief for Americans facing financial hardship during the pandemic. Announcing the latest action, President Joe Biden said that while the nation has seen economic growth, Americans are still recovering. He added that the extension will help borrowers “get back on their feet after two of the toughest years this country has ever faced.” It came amid growing fears that many borrowers would quickly fall behind if payments resume in May. A memo from the Federal Reserve last month warned that without more time, crime rates could “return from historic lows to their previous highs.”
How has it helped?
Alyssa Rizzo, of Colorado, said the pause in payments provided a path toward freedom. After graduating from Colorado State University, Pueblo in 2018, she is living in Pueblo with her parents while she pays off $24,000 in student loans. The pause has allowed her to save money in the hopes of living on her own, closer to her work in Colorado Springs. “It has taken a huge burden off my back and it has given me a lot of flexibility to save money,” said Rizzo, who works in a housing non-profit.
Kristin McGuire, of Covina, Calif., said the freeze has given her a break from $50,000 in student loans, allowing her to repair her credit and refinance her home with her husband. But she said the detail in the pieces has brought tensions of its own. “We still have this huge balance looming over our heads, and we’re constantly hoping and praying for relief,” said McGuire, executive director of Young Invincibles. “We can get people back in good shape, but we’re setting them up to fail again when we have these balloons left,” she said.
How long are the loans pending?
Federal student loans have been suspended for more than two years. In March 2020, the Trump administration gave borrowers the option to withhold payments for at least 60 days. Congress soon automated this as part of the pandemic relief package. The adjournment was later extended several times by Trump and Biden.
Will the freeze be extended again?
White House Press Secretary Jen Psaki did not wish to elaborate further when questioned at Wednesday’s briefing. “We will continue to assess,” she said. “While the economy is in a better shape than it was a year ago and we have a strong recovery, we also understand that many of the effects due to the pandemic are still long lasting.”
And what is being done?
In addition to loan breaks, the Biden administration is working to reform some of the programs that allow borrowers to erase debt. The Department of Education has eased rules for a notoriously complicated program known as Public Service Loan Forgiveness and for another program that wipes out student loans for Americans with Disabilities. The agency has approved $2 billion in loan cancellations for those who were defrauded by their colleges, as well as $1 billion for students who attended the now-defunct ITT Tech for-profit college, But left before graduation. Some Democrats have called for additional changes to the student loan system, including an overhaul of repayment plans, which critics say are overly complicated and difficult to navigate.
What about comprehensive loan forgiveness?
As a presidential candidate in 2020, Biden said he would “immediately cancel the minimum $10,000 student loan per person.” It hasn’t happened. The White House has said Biden would sign legislation canceling that amount if passed by Congress, but has resisted calls to wipe out the debt using executive action. Democrats including Sen. Chuck Schumer and Sen. Elizabeth Warren pressured Biden to repeal $50,000 across the board, saying it would further boost the economy and address racial disparities in student loans. In a statement, those Democrats lauded the new extension but said it underscored the need for “swift executive action” to cancel the debt. Asked about it on Wednesday, Psaki said Biden “has not ruled out the possibility,” but had no further updates.
What are people saying about Pause?
Lender advocacy groups welcomed the expansion, but many said it was not enough. The NAACP urged Biden to waive at least $50,000 for student borrowers. “With each repayment extension, you make a strong case for canceling it,” the group said. The Center for Responsible Lending also made the same demand, saying the latest action would give some borrowers a fresh start, saying “their debt will remain the same.” Democrats in Congress applauded the stagnation, while Republicans blasted it as a drain on taxpayers. Richard Burr, the ranking Republican on the Senate Education Committee, said the administration “wants to have their cake and eat it too: They want to normalize America’s return to normal after the pandemic, but also to expand emergency relief policies.” “
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