Loan payment

Federal student loan payment freeze expires Dec. 31

  • A freeze on federal student loan repayments and interest is set to expire Dec. 31, just weeks before President-elect Joe Biden takes office.
  • Without an extension from President Donald Trump, millions of Americans would have to resume those payments in order to avoid sanctions.
  • It will be up to the Biden administration to sort out the problem during the new president’s first weeks in office.
  • Visit Business Insider’s homepage for more stories.

Weeks before President-elect Joe Biden officially takes office, a temporary freeze on federal student loan payments put in place by President Donald Trump is set to expire, and with no possibility of renewing this moratorium first, Biden would inherit the task of addressing the issue.

Congress passed a bill in late March suspending federal student loan payments and interest. In August, Trump extended the freeze until December 31. Borrowers were allowed to take advantage of the zero interest period to continue to repay the principal of their loans, if they wished.

With more than 40 million student borrowers in the United States, experts told Business Insider that ending the suspension of payments could be detrimental to individual borrowers, the economy, and even loan servicers.

Americans could struggle to make their payments without a new student loan moratorium, and the Biden administration would have to find a solution to the likely economic consequences, a process that could take months to complete.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, told Business Insider that the looming uncertainty around the student loan freeze poses challenges for servicers. Buchanan told Politico that the federal student loan system “wasn’t designed to start and stop at the same time for 30 million borrowers.”

The Department of Education has already started reminding borrowers that payments will resume soon and offered guidance on the resources available to them, including a number of repayment options and deferrals.

Without a solution extending the suspension of payments, the number of aid requests could potentially overwhelm companies managing federal student debt. Betsy Mayotte, president of the Institute of Student Loan Counselors, told Business Insider that services could experience delays that would negatively impact consumers.

Mayotte said the student loan repayment freeze had helped servicers respond to requests for assistance from borrowers. Without the moratorium, it would have been difficult for repairers and the US Department of Education to manage demand, especially as they also navigated COVID-19 and managed employees who were working from home.

“I suspect the delays would have been huge. There absolutely would have been borrowers who would have fallen through the cracks there,” Mayotte said.

To deal with the millions of federal student loan accounts that would emerge from the Dec. 31 payment freeze, Buchanan suggested implementing a tiered repayment system where borrowers who need the least help can opt into the refunds first. It’s unclear how managers would determine which borrowers fall into this category, or how companies would encourage them to resume payments before customers in financial difficulty.

Young man at home, paying bills online

Aleksandar Nakic/Getty Images

And after

A week before Thanksgiving, the future of the federal student loan freeze remains uncertain. The Trump administration could decide to extend it, or if it ends, the incoming Biden administration could go a different route, or renew it retroactively when the president-elect takes office. And the likelihood that Congress will address the issue as part of a new stimulus package before the end of 2020 is slim.

Mayotte said she does not anticipate the Trump administration extending the moratorium and that the Biden administration is likely to issue orders to reinstate a freeze.

Read more: EXCLUSIVE: Documents reveal Trump is building his own ‘deep state’ by leaving political appointees in government for the Biden administration

There are other likely pain points. It could take weeks or months for loan servicers to implement any new freezes that may occur after the current one ends.

It took weeks for the Department of Education to freeze all payments in March. Additionally, CNN reported in May that the department was sued for continuing to collect loans from defaulting borrowers. Additionally, up to 5 million borrowers experienced technical errors from services that impacted their credit scores and took time to correct.

Michele Streeter, senior policy analyst at the Institute for College Access & Success, told Business Insider that the suspension of payments has not only been helpful in preventing people from defaulting and defaulting on payments. , this allowed them to focus on other necessary expenses.

“So many people have had a loss of income or lost a job or had their hours cut or had extra expenses due to the pandemic. It’s given people some breathing room and it’s given them the space to stretch their resources further,” says Streeter.

She added that defaults and defaults are also not easy for borrowers and that the freeze has helped prevent wage garnishment, and while it is unclear how many people could default without some sort of intervention, the pause on payments and interest helped give borrowers financial leverage.

Read more: Trump has waged a 4 year war on the press. Here’s what 5 White House briefing room insiders expect from the Biden era.

The current COVID-19 pandemic is far from over, and many public health experts have warned that the United States is in the deadliest wave yet. As cases rise and the United States continues to set single-day case records, many states and localities are re-implementing modified lockdown measures to slow the spread of the virus. On Friday, the COVID-19 Tracking Project reported 193,000 new cases.

For some people, the end of the student loan freeze could lead to more defaults and force borrowers to make tough decisions about their bills. Streeter said that’s especially the case because there are likely to be delays in processing applications for new backstop programs.

“They will either decide not to make a payment because they can’t afford it. They don’t really have a choice and then they start to get into a delinquent situation and risk defaulting later,” Streeter said.

“Or you see people trying to make payments they can’t afford and giving up paying for other necessities because of it.”