Biden extends student loan freeze through August

The Biden administration on Wednesday announced that federal student loan payments will remain paused through Aug. 31, extending a freeze that began in 2020 but was set to end after this month. The action is meant to help millions of borrowers regain financial footing before they’re back on the hook for payments.

The extension gives Americans another four months to get ready for student loan payments to restart. Borrowers won’t be asked to make payments until after Aug. 31, and interest rates will remain at 0% during that time. Under the new action, people who were behind on payments before the pandemic will automatically be put in good standing with the Education Department. That’s a change from previous policy, which required borrowers in default to make nine consecutive loan payments and apply to exit default. Education Secretary Miguel Cardona said the extra time will help his agency prepare borrowers for a “smooth transition back to repayment.“

The moratorium applies to most federal student loan programs, including the Direct Loan Program, which issues subsidized and unsubsidized student loans. It does not apply to private loans issued by banks, schools or other institutions. The latest federal data show that more than 43 million Americans have student loans, worth a combined $1.6 trillion.

The freeze has been extended multiple times as a reprieve for Americans facing financial hardship during the pandemic. In announcing the latest action, President Joe Biden said that while the nation has seen economic growth, Americans are still recovering. He said the extension will help borrowers “continue to get back on their feet after two of the hardest years this nation has ever faced.” It came amid rising fear that many borrowers would quickly fall behind if payments started in May. A memo from the Federal Reserve last month warned that without more time, delinquency rates “could snap back from historic lows to their previous highs.”

Federal student loans have been suspended for more than two years. In March 2020, the Trump administration gave borrowers the option to pause payments for at least 60 days. Congress made it automatic soon after as part of a pandemic relief package. The moratorium was later extended multiple times by Trump and Biden.