With the federal moratorium on student loan repayments set to end in less than two weeks, will the Biden administration extend the freeze? Industry leaders say yes.
“While I don’t have an announcement here today, I will let you know that we are having daily conversations with the White House, and borrowers will hear directly from us soon when a decision is made,” said the Secretary of Education, Miguel Cardona, at CBS. Mornings” Tuesday.
Payments for federally-backed student loans have been on hold since the pandemic began in March 2020 — they are set to resume Sept. 1 unless the Biden administration steps in. a move is likely.
“I assume our sources are the same as yours, what we read in the press and what…some of our former colleagues in the direct lending industry have spoken to us about,” Navient CEO Jack Remondi said. , in an earnings call in July. 27. “And it just happened that the department said not to communicate with customers yet. I think given where we are in the schedule and the end date of August 31st, it’s hard for us to believe that this does not get extended.”
The Trump administration initially gave Americans the option to suspend loan repayments, and Congress made it automatic soon after. The hiatus has been extended twice by the Trump administration and twice more under Biden. Interest rates have also remained at 0% since the moratorium was put in place.
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“Our outlook … assumes the federal student loan payment moratorium will last through January 2023,” SoFi CEO Anthony Noto told investors on an Aug. 2 earnings call.
In March, the Federal Reserve Bank of St. Louis warned that the resumption of loan repayments could place a heavy burden on borrowers who have encountered financial difficulties during the pandemic. He said the impact would be hardest on black families, who are more likely to rely on student loans to pay for their college education.
“Severe delinquency rates for student debt could return from historic lows to previous highs in which 10% or more of debt was in default,” the bank said.
US Student Loan Debt
Adrienne Trivers, 25, of Chelmsford, a 2005 graduate of Emerson College, holds her diploma and student loan repayment book (Photo by Tim Correira/MediaNews Group/Boston Herald via Getty Images)
More than 43 million Americans owe a combined $1.6 trillion in student debt held by the federal government, according to data from the Department of Education. This includes more than 7 million borrowers who have defaulted on their student loans, which means they are at least 270 days late.
According to the Education Data Initiative, 92% of all student loans are guaranteed by the federal government.
About 15% of student loans – worth an estimated $124.4 billion – are in default and 11% of college graduates are in default within the first year of repayment. About 43% of borrowers in default owe between $20,000 and $40,000.
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On average, a student loan in the United States will earn $26,000 in interest over 20 years.
In 2016, the average monthly student loan payment was $393. Adjusted for inflation, that figure is over $460 today, according to the Education Data Initiative.
Will Biden Forgive Student Loan Debt?
Student borrowers gather near the White House to tell President Biden to cancel student debt on May 12, 2020 in Washington, DC. (Photo by Paul Morigi/Getty Images for We 45 Million)
President Joe Biden has backed debt cancellation as a presidential candidate and has considered writing off up to $10,000 per borrower. He recently promised a decision by the end of August. Some Democrats in Congress have pushed Biden to forgive up to $50,000 in student debt for each borrower, but the president has said he does not support the increase.
In April, the US Department of Education announced changes to its Income-Based Repayment (IDR) program, which was expected to result in immediate debt cancellation for at least 40,000 borrowers and help millions more. to reduce their debt.
Last month, his administration proposed several changes to the repayment system that would make it easier for borrowers to get their federal student debt forgiven through several existing programs.
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The new rules would facilitate a debt forgiveness process for students whose colleges deceive them, as well as other programs for borrowers with disabilities and those pursuing careers in public service.
The Associated Press contributed to this report.