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President Biden Just Froze Student Loan Payments Through May 1
A piggy bank.
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On Wednesday, President Biden announced that pandemic relief for about 41 million federal student loan borrowers will be extended once again until May 1.
Loan payments, interest accruals and collections of defaulted federal student loans have all been on hold since the start of the pandemic — first thanks to the CARES Act, then due to extensions from former President Donald Trump, former Education Secretary Betsy DeVos and President Biden.
"We know that millions of student loan borrowers are still coping with the impacts of the pandemic and need some more time before resuming payments," President Biden wrote in a statement. The statement urged borrowers to prepare for repayments to resume.
Before Wednesday's announcement, payments were set to resume in February of 2022.
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"It makes me so relieved," says Brooke Jensen, a 2019 graduate of New York University with about $30,000 in individual student loan debt. "I don't have to think about this immediately. And hopefully by the time they do restart again, I will maybe be in a better place financially." Her mother also took out Parent Plus loans to help pay for her college, which Jensen was planning to help pay off.
"There's plenty of other things to be stressed out about in the world right now," Jensen says, "but not having student loan repayments, that'll be nice not to be stressed out about that."
Hold on to those dollars.
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The paused payments are estimated to be saving borrowers $5 billion a month, according to the U.S. Department of Education. By February 2022, that would have accounted for more than $115 billion dollars.
In a survey, nearly half (49%) of about 500 borrowers felt "not at all confident" they would be able to make their student loan payments come Feb. 1, according to research from the progressive group Data for Progress.
"We don't need to start the student loan system right now," said Mike Pierce, executive director of the Student Borrower Protection Center, an organization that has been urging the President to extend student loan relief. "Nothing about the trajectory of the pandemic and of Omicron suggests that things are immediately better in a way that makes us comfortable sending people student loan bills."
Whenever loan payments resume, many experts say the process will be quite messy, given so many back and forths with borrowers. Even a 2020 report from the Education Department noted the resumption of payments would be messy. Loan servicers and the federal government, the report says, will "face a heavy burden in 'converting' millions of borrowers to active repayment." The transition could also be confusing to borrowers, with some "becoming delinquent, at least initially."
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The more than 7 million borrowers currently in default may have the hardest time once loan payments resume. "Defaulted borrowers are really balancing on the edge of life here," says Pierce, "their financial circumstances are much more fraught than a typical student loan borrower."
Borrowers in default are more likely to be low-income, people of color, have some college and no degree, or work in low-wage jobs. Borrowers in default lose access to income-based repayment plans and can have their tax refund or paychecks garnished by the government. Older borrowers can even lose part of their Social Security checks. Now, those penalties won't resume for these borrowers for another 90 days.
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