Update: President Joe Biden on Wednesday announced the cancellation of $10,000 in student debt for borrowers earning $125,000 or less per year and households earning $250,000 per year or less. The freeze on student loan payments will also be extended until December 31. Borrowers with Pell Grants will receive $20,000 back. Borrowers with undergraduate loans under an income repayment plan will be able to cap repayment at 5% of their monthly income.
Student loan borrowers: brace for another extended payment break.
With the moratorium on federal student loans set to end on August 31, experts say it is highly likely to be extended for the seventh time. Payments for federal student loans have been continuously halted since the start of 2020, providing borrowers with temporary relief from their student loan balances.
“The payment pause will likely be extended again, likely until January 31, 2023,” said Robert Farrington, CEO of The College Investor. “The lack of communication with borrowers to date makes this very likely.”
The Biden administration has remained largely silent since it last extended the student loan payment pause in April when it cited the ongoing recovery from the COVID-19 pandemic amid surging debt. ‘inflation. When a reporter recently asked President Joe Biden what his position was on “the student loan decision,” he replied “by the end of August.” However, it’s unclear whether he was referring to his decision on suspending student loan payments, canceling student loans, or both.
Biden is set to make a final decision on canceling student loans and pausing federal student loans.
Although no final decision has been made, several signs point to a further extension of the payment break.
4 signs the student loan payment break will be extended again
1. The midterm elections are approaching
With November’s midterm elections fast approaching, the president may be hesitant to address the divisive student loan situation. Biden backed canceling at least $10,000 in federal student loan debt during his 2020 presidential campaign, but Democrats and Republicans remained split on whether student loans should be forgiven at large. ladder.
Some supporters have called for Biden to forgive more than $50,000 in student loans per borrower, while opponents have completely rejected the idea of a broad student loan forgiveness. Soaring inflation has become another complicating factor, with the blanket student loan waiver having the potential to boost the purchasing power of significant numbers of Americans at a time when policymakers seek to reduce consumer demand.
Restarting student loan repayments two months before an election would be “political suicide”, according to higher education expert Mark Kantrowitz. “Beyond political considerations, there is no valid justification for a further extension of the payment pause and interest waiver,” he says.
2. The economy could be in trouble
Administration officials have repeatedly said they will consider economic factors when deciding whether to grant a further extension to the student loan payment break.
The US economy is currently under pressure, with inflation still at its highest level in four decades and new signs that the country could enter a recession. Interest rates are rising, and whether we are technically in a recession or not, many Americans think the economy is in trouble. That could play into the administration’s decision whether or not to extend the short-term break, experts say.
“Excessive inflation has driven up the prices of almost everything, and most borrowers are unlikely to be able to repay their loans,” says Tony Aguilar, founder and CEO of Chipper, a student loan repayment app. “A further extension also gives the White House more time to review potential pardon plans.”
3. Student loan servicers have been told to wait
The Department for Education reportedly told student loan servicers this week not to send billing notices to borrowers – a sign that it does not plan to ask borrowers to resume payments in the near future.
Because the student loan payment freeze was enacted under the CARES Act, loan officers are required to give more than six notices beginning at least two months before payments resume. The beginning of July was the two-month mark for the August 31 deadline, but borrowers have yet to receive any information on when repayment will restart.
“This suggests that the student loan payment pause and interest relief will be extended because there simply won’t be enough time to prepare borrowers to resume student loan payments,” Kantrowitz says.
4. The U.S. Secretary of Education Alluded to This
At a Senate subcommittee hearing in June, U.S. Education Secretary Miguel Cardona said the student loan payment suspension could be extended again. Cardano said borrowers will receive “sufficient notice” of any decision made by the department, though it hasn’t spoken about it publicly since.
When are student loan repayments likely to resume and what should borrowers do?
Student loan repayments will resume from September 1, leaving millions of borrowers waiting to hear whether they will have to start repaying their student loans after a nearly two-and-a-half-year pause.
Since experts generally agree that the break will be extended, the question is rather how long the break will be extended. Farrington says a 60-day extension would put him just before the midterm elections, which “seems too short politically.” He says setting the deadline at the end of the year “could be a possibility, but it might not be a good idea given all the holidays”.
“I think we’ll probably see an extension until January 31, 2023,” Farrington says. “As to whether it will be the last, it is not certain. I think the administration is trying to extend the pause as long as possible so they can sort through any potential forgiveness plans or other student loan reform.
Farrington adds that the president can continue to extend the recess as long as there is a state of emergency. “As long as this continues to be extended, payment may also be suspended,” he says.
While signs point to another extension, nothing is set in stone yet. Anything can happen, so borrowers should use this time to prepare and set themselves up for success with a plan. Experts say it’s best to assume payments resume at the end of August, unless otherwise stated. Update your contact information, review all of your loans, and start budgeting for monthly student loan payments in the weeks ahead.
“Right now is the time to assess your debt and find out what forgiveness programs you qualify for; and if you don’t qualify for the forgiveness, you need to figure out what’s the best and cheapest way to pay off your student loans,” says Aguilar.