Products You May Like
President Joe Biden announced Wednesday another extension of the payment pause on federal student loans, this time until September.
This is the sixth prolongment of the break, which has spanned more than 24 months and two presidencies. Borrowers have saved nearly $200 billion during that period, the Federal Reserve has found.
The policy freezing the bills of the tens of millions of Americans with education debt was first established by the former Trump administration in March 2020, when the coronavirus pandemic brought the U.S. economy to its knees.
Nearly all borrowers eligible for the pause have used it, with just around 1% of them continuing to pay, according to an analysis by higher education expert Mark Kantrowitz.
Although the country has seen tremendous improvements since the crisis began, it would be risky to resume student loan payments right now, Biden said.
More from Personal Finance:
Many workers are unhappy with their pay
These are the top tax breaks for college expenses
White House expected to extend student loan payment pause through August
“We are still recovering from the pandemic and the unprecedented economic disruption it caused,” Biden said, in a statement.
Restarting the payments could “threaten Americans’ financial stability,” the president said, citing recent research from the Federal Reserve that forecast a rise in delinquencies and defaults when the bills begin again.
Biden is also under tremendous pressure to forgive student debt. On the campaign trail, he promised to cancel $10,000 for all.
Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Elizabeth Warren, D-Mass., are pushing him to cancel closer to $50,000 per borrower.
Nearly 66% of likely voters are in support of the president forgiving student debt, with more than 70% of Latino and Black voters in favor, a recent poll found.
White House chief of staff Ron Klain said last month that the administration wanted to come to its decision on loan forgiveness before turning payments back on.
“The president is going to look at what we should do on student debt before the pause expires, or he’ll extend the pause,” Klain said on the podcast “Pod Save America.”
Even before the public health crisis, student loans were a major challenge for many households. Outstanding education debt exceeds $1.7 trillion, burdening families more than auto or credit card debt.
Some 40 million people in the U.S. have loans from their schooling, and more than a quarter are past due. The average balance is more than $30,000.
Yet the repeated extensions of the payment pause will cause its own issues for borrowers, warned Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.
“What’s a borrower to believe or plan for anymore when the government keeps changing its mind?” Buchanan said. “When the inevitable resumption does finally happen, millions of borrowers will likely miss it and go delinquent because of the false expectations the government is now setting.”
Kantrowitz said borrowers are unlikely to take the September restart date too seriously at this point.
“The U.S. Department of Education has extended the payment pause and interest waiver so many times and with such late notice that nobody will believe them when they really do restart repayment,” he said.
“They need to stop sitting on the fence about student loan forgiveness,” Kantrowitz added.
How will more time without student loan payments impact you? If you’re willing to talk for a story, please email me at [email protected]