Recently, the Education Department announced a long-awaited decision. As we approached September, many borrowers were concerned that their student loan repayments would resume. Luckily, the Biden administration extended the student loan non-repayment period once again. As a result, you are not required to repay the federal student loan debt till January end of 2022.
However, the administration marks this extension as the “final” one. Hence, you have to start thinking about repayment strategies before it resumes.
Read the guide to be aware of what happened recently regarding the repayment suspension and how it relates to your student loans.
What Happened Previously?
Due to the pandemic, many American families struggle with their finances. During such hard times, the government wanted to help families focus on their health and safety rather than debt challenges. Hence, the government announced the student loan non-collection period as a part of the CARES – Coronavirus Aid, Relief and Economic Security- Act in March of 2020. Based on the act, student loan borrowers were not required to repay the debt until September 2020. Besides, the interest payments did not accumulate because the interest rate was set to 0%.
Later, this decision of non-repayment was extended to December end and then to January end.
Biden Administration’s Efforts for Student Loans
When Biden became the President in January, many borrowers were already concern due to loan repayment. They expected that Biden might not extend the student loan forbearance (non-collection) period anymore. Meanwhile, more optimistic experts expected a 1-2 months long extension.
However, as one of his first decisions, Biden announced that he stops debt collection not for a few months but eight months.
There is no time to waste when it comes to tackling the crises we face. That's why today, I am heading to the Oval Office to get right to work delivering bold action and immediate relief for American families.
— President Biden (@POTUS) January 20, 2021
Based on the January 2021 announcement, the administration decided not to collect federal student loan repayments until September. The administration mentioned that many borrowers are still in financial difficulty, and they do not want such individuals to choose between their debt obligation and food expenses.
Such great news helped more than 40 million borrowers to get through January-September.
Update on Student Loan Non-Repayment for September 2021
Now that we approach September, the question of whether the borrowers should pay loan bills in October is raised again. Luckily, the Biden administration announced another student loan pause period- till February 2022 (January end).
On my first day in office, I directed the Department of Education to pause federal student loan repayments for millions of Americans until September. The pause has been a critical lifeline — that’s why today, my administration is extending the pause until January 31, 2022.
— President Biden (@POTUS) August 6, 2021
The Education Department quickly announced this extension on its official website. It is noticeable that ED Secretary Miguel Cardona mentioned “final extension” in his notes regarding the decision. The administration believes that this extension will give time to borrowers to prepare for repayment and decrease the cases of delinquency/default once the repayment is resumed.
Therefore, if no major changes happen regarding the national emergency, borrowers could expect that the extension till February is final. Hence, it is the last call to take any action for your student loan debt.
What does the Extension Bring?
The student loan repayment pause allows borrowers not to make monthly repayments due to their student debt till January end. However, it does not mean you cannot repay the debt. On the contrary, if your finances are at satisfactory levels, you can continue repaying the debt. Hence, when the repayment resumes, your original debt balance will be lower, and you will save money from monthly payment amounts.
Keep in mind that during the pause period, no interest rate is accumulated. In other words, your interest rate is set to 0%. Therefore, non-repayment does not cause any penalties or increased debt balance.
Additionally, suspension only applies to federal student loans, particularly to Direct and PLUS loans.
How does the Debt Repayment Suspension Affect Public Service Loan Forgiveness?
The Public Service Loan Forgiveness is a federal aid program that eliminates the remaining debt balance once the borrower makes 120 payments. Therefore, it takes a minimum of 120 months, or ten years, to get debt cancellation.
Some people might be worried that if they are in a non-repayment period, they lose time which could have made them closer to the forgiveness opportunity.
The good news is that each month of student loan repayment suspension still counts for the PSLF payments.
What about Debt Cancellation Possibility?
Student loan borrowers praised the government for another extension of the student loan non-repayment period. However, they still call the President to forgive student debt to bring wider relief to debtors.
The Executive Director of Student Debt Crisis also mentioned that extension is helpful, but the President can help more by granting forgiveness before debt repayment resumes.
Since his presidency, Bident approved $1.5 billion worth of loan forgiveness due to Borrowers’ Defense to Repayment. Those who got partial discharge with this program could receive full forgiveness. Besides, $1.3 billion was granted to borrowers with a total and permanent disability.
Yet, the debate on direct forgiveness per American Individual (more specifically, worth $50,000) continues.
$50,000 Student Loan Forgiveness; Is It Probable?
The discussion continues on the loan forgiveness issue. Back in March 2020, Biden tweeted about his support for $10,000 forgiveness.
Additionally, we should forgive a minimum of $10,000/person of federal student loans, as proposed by Senator Warren and colleagues. Young people and other student debt holders bore the brunt of the last crisis. It shouldn't happen again.
— Joe Biden (@JoeBiden) March 22, 2020
However, democrats- Sen. Elizabeth Warren, Senate Majority Leader Chuck Schumer, and Rep. Ayanna Pressley- have long advocated for $50,000 student loan forgiveness, which they see essential to revive the economy. They even claimed that Biden has the power to grant forgiveness through executive action (not legislative action). It means Biden can decide on forgiveness without getting Congress Approval.
Later, the White House Press Secretary said that the President still supports direct forgiveness, but he welcomes this action through the legislative method.
The President continues to support the cancelling of student debt to bring relief to students and families. Our team is reviewing whether there are any steps he can take through executive action and he would welcome the opportunity to sign a bill sent to him by Congress.
— Jen Psaki (@PressSec) February 4, 2021
The problem with Congress approval is that many Republicans do not support forgiveness. Therefore, if voted, forgiveness action can be rejected. Currently, another issue created a barrier for the discussions as House Speaker Nancy Pelosi -another Democrat- argued that the President does not have the right to grant forgiveness through executive order.
Despite the #Cancelstudentdebt movement, considering the volume of opposing parties, current economic challenges, and costs of Biden’s actions to help borrowers, direct loan forgiveness does not seem highly likely soon.
Take Action before Debt Repayment Resumes
You have around five months till student loan repayment resumes. It is a sufficient period to think about your options and generate a debt repayment plan.
If you have federal student loans, do not just sit and wait for the President to cancel the debt (which seems unlikely with current conditions). There exist several debt forgiveness programs which can bring you highly-desired debt cancellation opportunities. You can check financial aid programs, like:
- Public Service Loan Forgiveness
- Borrowers’ Defense to Repayment
- Closed School Discharge
- Teacher Loan Forgiveness, etc.
Besides, you can change your repayment plan if you have financial difficulties. Income-driven repayment plans allow borrowers to pay a small portion of discretionary income for the debt. In this way, monthly loan payments become more affordable.
It is better to talk to your loan servicer or get expert help, like those in Student Loans Resolved, to help you create an effective and suitable debt resolution strategy.
What about Private Loans?
Unfortunately, Biden’s loan repayment suspension decision is only about federal Direct and PLUS loans. So if you have private student debt, do not bother yourself with direct forgiveness or loan non-repayment opportunities.
You can still refinance your debt with cheaper loans to save money. Student loan refinancing allows borrowers to change the annoying lenders, save money with lower interest rates and improve credit performance. You can find more information on refinancing in our blogs.