Biden extends student loan freeze through Aug.
The Biden administration on Wednesday said 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.
What does it mean for borrowers?
The extension gives Americans another four months before student loan payments 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.”
Who is eligible?
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.
Why is it being extended?
The freeze has been extended multiple times as a reprieve for Americans facing financial hardship during the pandemic. 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.” 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.”
How long have loans been paused?
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.
What else is being done?
In addition to the loan pause, the Biden administration has been working to revamp certain programs that let borrowers get debt erased. The Education Department has relaxed rules for a notoriously complex program known as Public Service Loan Forgiveness program, and for another program that erases student debt for Americans with disabilities. The agency has approved $2 billion in debt cancellation for people who were defrauded by their colleges, plus $1 billion for students who attended the now-defunct ITT Tech for-profit college but left before graduating. Some Democrats have called for additional changes to the student loan system, including an overhaul of repayment plans that critics say are difficult to navigate.
What about wider loan forgiveness?
In 2020, candidate Biden said he would “immediately cancel a minimum of $10,000 of student debt per person.” That hasn’t happened. The White House has said Biden would sign legislation canceling up to that amount, but it has resisted calls to erase debt using executive action. Democrats including Sen. Chuck Schumer and Sen. Elizabeth Warren have pressed Biden to cancel $50,000 across the board, saying it would further boost the economy and address racial inequities in student debt. In a statement, those Democrats applauded the new extension but said it underscores the need for “swift executive action” to cancel debt.
What are people saying about the pause?
Borrower advocacy groups welcomed the extension, but many said it isn’t enough. The NAACP urged Biden to forgive at least $50,000 for student borrowers: “With each and every repayment extension, you make a stronger case for canceling it,” the group said. The Center for Responsible Lending made the same demand, saying that while the latest action will give some borrowers a fresh start, “their debts remain the same.” Democrats in Congress applauded the pause, while Republicans blasted it as a drain on taxpayers. Sen. Richard Burr, the ranking Republican on the Senate education committee, said the administration “wants to have their cake and eat it, too: they want to tout America’s return to normal following the pandemic, but also want to keep extending emergency relief policies.”