On Wednesday, President Biden announced that relief from the pandemic for approximately 41 million Federal student loan borrowers will be extended again until May 1.
Loan payments, accrued interest, and past due federal student loan collections have all been on hold since the start of the pandemic – first thanks to the CARES Act, then due to extensions by former President Donald Trump, former Education Secretary Betsy DeVos and President Biden.
“We know that millions of student loan borrowers are still facing the impacts of the pandemic and need more time to resume payments,” President Biden wrote in a statement. The statement urged borrowers to prepare for the resumption of repayments.
Prior to Wednesday’s announcement, payments were expected to resume in February 2022.
“It relieves me tremendously,” said Brooke Jensen, a 2019 New York University graduate with around $ 30,000 in individual student loan debt. “I don’t have to think about it immediately. And I hope that by the time they start again, I might be in a better financial position.” Her mother also took out Parent Plus loans to help pay for her college, which Jensen planned to help pay off.
“There are a lot of other things to be stressed about in the world right now,” Jensen says, “but not having a student loan repayment, it will be good not to be stressed about it. “
The suspended payments are expected to save borrowers $ 5 billion per month, according to the US Department of Education. In February 2022, this would have represented more than 115 billion dollars.
In a survey, almost half (49%) of the roughly 500 borrowers estimated “not at all confident” they would be able to make their student loan payments on Feb. 1, according to a study by the progressive group Data for Progress.
“We don’t need to launch the student loan system now,” said Mike Pierce, executive director of the Student Borrower Protection Center, an organization that urged the president to expand student loan relief. “Nothing in the trajectory of the pandemic and Omicron suggests things are immediately improving in a way that makes us feel comfortable sending student loan bills to people.”
Whenever loan repayments resume, many experts say the process will be quite complicated, given the many back and forths with borrowers. Even a 2020 education department report noted that resumption of payments would be messy. Loan managers and the federal government, according to the report, “will face a heavy burden in ‘converting’ millions of borrowers to active repayment.” The transition could also be confusing for borrowers, with some “becoming delinquent, at least initially”.
The more than 7 million borrowers currently in default could have the most difficulty once loan payments resumed. “Defaulting borrowers are really on a knife-edge here,” says Pierce, “their financial situation is much more difficult than that of a typical student loan borrower. ”
Borrowers in default are more likely to be low-income, people of color, have a college degree and no diploma, or have low-paying jobs. Borrowers in default lose access to income-based repayment plans and may have their tax refund or paychecks seized by the government. Older borrowers may even lose part of their social security checks. From now on, these penalties will only resume for these borrowers for 90 days.