According to an administration insider familiar with the situation, the Biden administration intends to extend a moratorium on federal student loan repayments until August 31.
Originally set to expire on May 1, the repayment freeze, which had been in effect since the beginning of the pandemic, has now been extended.
According to the official, the administration is set to announce the extension on Wednesday morning.
For more than two years, borrower balances have essentially been frozen, with no payments expected on most federal student loans beginning in March 2020. During this period, interest has ceased to accrue and collections on defaulted debts have been put on hold, respectively.
Several steps have been made to extend the halt, including those taken by President Joe Biden and former President Donald Trump. Biden had already moved the payment restart date three times, the most recent of which was in December.
This warning came from the Biden administration when they announced that they would be extending the halt until the end of January 2022, indicating that it would be the final extension. However, the President decided to push back the date once more because the number of Covid-19 cases had increased during the winter.
Recently, Biden has come under increasing pressure from other Democrats and consumer advocacy groups to move the date again again, citing inflation and continued supply chain issues that are driving up the cost of basic things for families to live on a tight budget. Hundreds of Democratic members of Congress wrote to Vice President Joe Biden this week, pushing him to extend the delay until at least the end of the calendar year.
Who stands to gain?
The benefit is accessible for Direct Loans as well as PLUS loans, which are provided to graduate school students and parents on behalf of their children. The government did not qualify some federal loans that are guaranteed by the government but are not formally held by the government, known as Federal Family Education Loans (or FFELs). Generally, those were paid out prior to the year 2010.
The suspension of payments is even more significant for people who work in the public sector and who may be eligible for federal student loan cancellation after ten years of service in that capacity. As long as they continue to work full time for qualifying employers, they will continue to receive credit toward those ten years of mandated contributions as if they had continued to make them throughout the pandemic.
After conducting an analysis, the Committee for a Responsible Federal Budget discovered that the suspension of interest and payments from March 2020 to the previously anticipated expiration date of May 1, 2022 will result in debt reduction equal to an average of $5,500 per borrower during the period.
According to the analysis, this alleviation is primarily attributable to the cessation of interest accumulation, and it has primarily benefitted doctors and lawyers, who are more likely than others to borrow substantial sums of money for their graduate degrees. As a result of not taking into consideration the additional advantage that persons pursuing Public Service Loan Forgiveness receive as a result of the payment halt, the report may understate the amount of relief.
As reported by the Committee for a Responsible Federal Budget, the hiatus costs the federal government approximately $4 billion per month.
Some Democrats are advocating for the cancellation of student loans.
Some prominent Democratic politicians, like Senate Majority Leader Chuck Schumer of New York and Sen. Elizabeth Warren of Massachusetts, have been urging Biden to erase student loan debt on a broad scale, up to $50,000 per borrower. Biden has refused to do so.
The vice president made it clear throughout the presidential campaign that he supported various forms of federal student loan forgiveness. However, since taking office, he has resisted calls for him to eliminate debt on his own, either through legislation or executive order.
Instead, Vice President Joe Biden has pushed Congress to enact legislation that would eliminate the $10,000 per borrower cap. He also urged that high-income debtors be excluded from debt cancellation, stating last year that the government should not forgive debt for persons who attended “Harvard, Yale, and Penn,” among other institutions.
Loan forgiveness programs for borrowers who work in the public sector, who were cheated by for-profit colleges, and who are now permanently incapacitated have also been increased by the Biden administration.
More than $17 billion in federal student loans have been cancelled as a result of these initiatives, resulting in the cancellation of debt for more than 700,000 students who previously owed money.
Making preparations for repayment
In accordance with Department of Education policy, borrowers should expect to receive a billing statement or other notice at least 21 days before their payment is due to be processed. Those who have set up automatic payments may need to tell their loan servicing provider if they wish for those to continue to be processed.
After returning to work, borrowers who have federal student loans may be eligible for an income-driven repayment plan if they are unable to make their monthly payments anymore. The monthly price for those plans, which are based on income and family size, can be as low as $0 per month in some instances.