Federal student loan payments have stalled for more than two years, and student loan forgiveness has yet to be negotiated for most Americans. Although no official decision has yet been made on full student loan forgiveness, it is possible that the payment pause will be extended beyond September. (Here’s what happens to your credit score when your student loans are forgiven.)
Secretary of Education Miguel Cardona testified at a Senate subcommittee hearing in which he proposed an extension of the moratorium on student loans in response to a question from the New Hampshire senator.
“I have no information now as to when this will end or what the conversation will be about if it is lifted,” Cardona said. “I know we have a date and it may have been extended. Or it may be where it starts. But what I would say is that our borrowers will have enough lead time.”
The current moratorium on student loans ends on August 31st. This means that interest charging and required monthly student loan payments for federal student loans will resume on September 1. President Joe Biden last extended the pause in April, marking the fourth extension of the moratorium since the coronavirus pandemic began in March 2020.
“If loan payments resumed as planned in May, an analysis of recent Federal Reserve data suggests millions of student loan borrowers would face significant economic hardship,” Biden said in an April statement.
The resulting offenses and omissions, he said, “could threaten the financial stability of Americans.”
Student loan freeze halts payments and interest for 35 million Americans and collection efforts against 7 million borrowers who are currently in default. According to an analysis by the Federal Reserve Bank of New York, taxpayers are allowed to hold about $200 billion in total.
Collectively, Americans owe $1.76 trillion in public and private student loans, the most consumer debt other than mortgages.
Here’s what you need to know about federal student loan payments, including how long the pause might last, what other benefits come with it, and whether Biden will push for more student loan forgiveness.
How long is the student loan payment pause?
Federal student loan repayments will now be suspended for two years, meaning no interest has accrued and collections on defaulted loans will be withheld.
Former President Donald Trump first imposed a moratorium on student loans in March 2020 and twice extended it to January 2021. Biden extended the break four times.
The Biden administration had warned that the extension would be final until January 2022, but when the Omicron version of COVID-19 swept through the US last year, Biden decided to extend the moratorium until May 1, 2022.
Then, in a March 31 letter, Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren and other senior Democrats called on the White House to extend the moratorium again and cancel “significant” debt.
“Resuming repayments would leave many borrowers and their families financially unsustainable and create difficulties for many who could not make repayments,” the letter said. In April, Biden again extended the repayment freeze and withheld payments until Thursday, September 1, 2022.
“This additional time will help borrowers achieve greater financial security and support the Department of Education’s efforts to continue reforming student loan programs,” Biden said.
Will Biden Renegotiate Student Loan Payments?
It remains to be seen whether the president will halt student loan payments by Aug. 31, but Cardona’s testimony at a Senate subcommittee hearing suggests that option is at least on the table.
“In theory, Biden could further expand student-loan facilitation through multiple executive orders, halting payment of a student loan ‘forever,'” wrote Zack Friedman, CEO of online financial marketplace Mentor, in Forbes. Is.
Or at least until he leaves the office.
What about the defaulting borrowers?
Borrowers who default are automatically given a “fresh start,” according to a statement from the US Department of Education. Their accounts are returned in good working order and any arrears are “fixed” so they can repair their loans and access programs like income-based repayment and forgiveness of public service loans, from which nonprofit organizations benefit those they work for
“During the hiatus, we will continue our preparations to give borrowers a fresh start and ensure that all borrowers have access to repayment plans that meet their financial conditions and needs,” Cardona said in the statement.
Can Biden Get More Student Loan Forgiveness?
During the campaign, Biden said he would support legislation to foreclose federal loans at a minimum of $10,000 per borrower. Though the White House has been largely silent on the issue since taking office, the Department of Education has taken steps on this front in recent months.
Since October’s reform of the Department of Public Services’ loan forgiveness program, more than 750,000 borrowers have liquidated their student loans, totaling more than $18.5 billion in debt relief through May.
Then-White House press secretary Jen Psaki said in April that the president “didn’t rule out” that he used executive action to forgive a significant portion of the student-loan debt.
Whether they have the legal authority to do so without an act of Congress is still unclear.