What to know as student loan pause is set to expire
College students heading to campus this fall may be confused by the recent headlines about student debt and wonder: Does this affect me?
Will the pause on student loan repayments that started early in the pandemic be extended? Will some student debt be erased?
“It’s a very confusing time,” said Regan Fitzgerald, manager of the Pew Charitable Trusts’ project on student borrower success.
Here is a rundown of what is known and unknown and what students should consider.
The pause on payments and interest on most federal student loans is set to end Aug. 31. An extension would have less impact on students still in school because they are not yet repaying their loans, financial aid experts say.
And although it is still unclear whether the Biden administration will act to forgive some student debt, any relief may be limited. But until plans are announced, “we are not sure what the parameters will be,” Fitzgerald said.
In an emailed statement, an Education Department spokesperson said the department’s “review of broad-based debt cancellation remains ongoing and no decisions have been made.”
Because the rules seem to be ever-changing, it is important for borrowers to keep up with student loan options and policies, Fitzgerald said. “Financial awareness around student loans is very important,” she said.
Students who are borrowing money for the fall should concentrate on what they need rather than speculate about whether some debt may be erased, said Michele Streeter, senior director of college affordability at the Institute for College Access and Success, a nonprofit that promotes college affordability.
Mark Kantrowitz, a financial aid expert, advises students to borrow “only as much as you need, not as much as you can.” Your total debt at graduation should be less than your anticipated annual starting salary, he said — ideally, “a lot less.”
The Consumer Financial Protection Bureau offers tools on its website to help determine how much you can safely borrow based on your financial situation and anticipated income after graduation.
On July 1, interest rates for federal student loans for undergraduates rose to 4.99 percent for loans made through June 2023. Rates on federal loans are set each spring based on a formula and apply to all new loans made during a given academic year. The rate is fixed.
In general, dependent students can borrow up to $5,500 in federal loans their first year, $6,500 their second year, and $7,500 for each of their third and fourth years, with an overall cap of $31,000. Borrowing caps are higher for independent and graduate students.
When it comes to a loan pause extension, it seems increasingly probable as the August deadline approaches without an announcement of plans to restart payments that there will be one. “I would say it’s very likely there will be another extension,” Streeter said. Kantrowitz said he thought that the pause might be extended into next year.
Loan servicers have been given “strong guidance” from the Education Department to hold off on notifying borrowers about resuming payments, said Scott Buchanan, executive director at the Student Loan Servicing Alliance, an industry group. If the repayment pause is not extended, he said, “we’ve missed out on an opportunity to prepare for it.”