Home Consumer debt Suspension of student loan repayments could be extended beyond August

Suspension of student loan repayments could be extended beyond August

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Education Secretary Miguel Cardona testified before a Senate subcommittee Tuesday’s hearing in which he suggested an extension of the student loan moratorium is still a possibility, in response to a question from New Hampshire Senator Jeanne Shaheen.

“I now have no information to share with you on when this will end or conversations regarding when this is going to be lifted,” Cardona said. “I know we have a date, and it may be extended. Or it may start there. But what I will say is that our borrowers will be given adequate notice.”

The current student loan moratorium expires on August 31. This means that on September 1, interest charges and required monthly payments for student loans should resume on federal student loans. US President Joe Biden last extended break in Aprilmarking the fourth extension of the moratorium since the start of the coronavirus pandemic in March 2020.

“If loan repayments were to resume on schedule in May, analysis of recent Federal Reserve data suggests that millions of student borrowers would face significant economic hardship,” Biden said in the statement. april.

Delinquencies and resulting defaults, he added, “could threaten the financial stability of Americans.”

The student loan freeze halts payments and interest for 35 million Americans and collection efforts against the 7 million borrowers currently in default. Collectively, this has saved taxpayers nearly $200 billion, according to an analysis by the Federal Reserve Bank of New York.

Overall, Americans owes $1.76 trillion in public and private student loans, the largest consumer debt outside of mortgages.

Here’s what you need to know about federal student loan repayments, including how long the pause will last, what other benefits it includes and whether Biden will push for more student debt forgiveness.

How long is the pause on student loan repayments?

Federal student debt repayments have been suspended for two years now, meaning interest has not accrued and collections on defaulted debts have been suspended.

Former President Donald Trump first declared the pause on student loans in March 2020 and extended it twice until January 2021. Biden extended the pause four more times.

The Biden administration had warned that the extension until January 2022 would be the last, but with the omicron variant of COVID-19 sweeping the United States last year, Biden decided to maintain the moratorium until the 1st May 2022.

Then a March 31 letter Senate Majority Leader Chuck Schumer, Sen. Elizabeth Warren and other leading Democrats called on the White House to extend the moratorium again and provide “meaningful” debt cancellation.

“Restarting repayment will financially destabilize many borrowers and their families, and cause hardship for many who cannot afford to repay,” the letter said. In April, Biden again extended the repayment freeze, suspending 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 improving student loan programs,” Biden said.

Will Biden suspend student loan payments again?

It remains to be seen whether the president will suspend student debt payments by Aug. 31, but Cardona’s testimony at the Senate subcommittee hearing seems to indicate the option is at least on the table.

“Theoretically, Biden could continue to extend student loan relief through multiple executive orders, creating a ‘forever’ student loan payment pause,” Zack Friedman, CEO of online financial market Mentor, written in Forbes.

Or at least until he leaves office.

What about borrowers in default?

Borrowers in default will automatically receive a ‘fresh start’, according to a statement from the US Department of Education. Their accounts will be restored to good standing and any defaults will be “corrected”, allowing them to repair their credit and gain access to programs such as income-contingent repayment and Cancellation of civil service loanswhich benefits those who work for non-profit organizations.

“During the pause, we will continue our preparations to give borrowers a fresh start and ensure that all borrowers have access to repayment plans tailored to their circumstances and financial needs,” Cardona said in the statement.

Can Biden forgive more student debt?

During the campaign, Biden said he would support legislation canceling a minimum of $10,000 in federal loans per borrower. However, the White House has remained largely silent on the issue since taking office, although the Department of Education has taken action on this front in the past two months.

Following the reorganization of the ministry of its Civil Service Loan Cancellation Program in October, more than 750,000 borrowers saw their student loans extinguished, collectively reaching over $18.5 billion loan receipts starting in May.

So-White House Press Secretary Jen Psaki said in April that the president “has not ruled out” using executive action to write off substantial amounts of student loan debt.

It remains unclear whether he has the legal authority to do so without congressional legislation.