One of Biden’s first steps will be to extend the student loan payment hiatus until September 30
Student loan borrowers will not have to resume payments on their federal direct student loans until October, the new Biden administration said on Wednesday.
After being sworn in as president, Joe Biden plans to ask the Department of Education to “immediately consider” extending the coronavirus-era hiatus on student loan payments and collections until September 30 At least 2021. Transition officials announced earlier this month that they plan to extend the student loan payment hiatus, which was due to expire on Jan.31, but had not specified when payments would resume.
âThis is a significant break to give borrowers some peace of mind for now,â said Persis Yu, director of the student loan borrower assistance project at the National Consumer Law Center. “Hopefully that means we’re going to take this time to really get this system in better shape when we resume payments.”
Borrowers and advocates have been worried for months about the possibility of resuming payments as the freeze continued to be extended on an interim basis. Since the economic impacts of the pandemic have not abated, they fear borrowers will face financial and administrative challenges when resuming payments.
The uncertainty surrounding the payment pause has also created an operational challenge for student loan managers, who are tasked with turning the entire student loan system on and off – an unprecedented task.
The freeze originally began in March 2020 and was scheduled to expire in September 2020. President Trump extended the break until December 31, and the Department of Education again extended it until January 31.
In addition to providing certainty for borrowers and services, the October 1 calendar ensures that borrowers’ tax refunds are not at risk of foreclosure. The government has the ability to offset the earned income tax credit of borrowers or other tax refunds on delinquent student loans.
Last year, because the freeze on student loan payments and collections was put in place so close to tax season, there was “still friction” to turn off the tax clearing system, Yu said, and some borrowers have had their tax refunds foreclosed by the government. even after the break has taken effect. Waiting for payments and collections to resume until at least October of this year mitigates the risk of a similar situation happening again, she said.
Yu said she would like policymakers to take the time offered by the student loan payment hiatus to consider reforms to the collection system, including preventing the foreclosure of EITC and Social Security benefits and fixing the follow-up. programs that borrowers can use to repay. their debt in proportion to their income.
While many borrowers will continue to receive pandemic-related student loan relief, millions of people will likely still be excluded from the pause in payments and collections. Biden plans to ask the Education Department to extend the hiatus on federal direct loans, according to transition documents. This means that borrowers with private student loans and those with federal student loans held by banks and guarantee agencies – around 9 million borrowers – are still required to repay their loans.
âIt’s really frustrating that policymakers continue to ignore these borrowers,â Yu said. âThere is no good reason they should be treated any differently just because of when their loans were taken out or of who their school chose to be their lender at the time. ”
In addition to including these borrowers in any payment hiatus, mainstream advocates and Democrats have called for more radical action on student loans. In September, Senate Democrats Chuck Schumer and Elizabeth Warren urged the next president to use executive power to immediately write off up to $ 50,000 in student debt. Some activists have called on Biden to cancel all student loans.
Debate has raged since Biden’s election over the idea of ââbroad-based debt cancellation and whether Biden should do it or leave it in Congress instead. Biden’s transition officials said he was backing Congress in immediately forgiving $ 10,000 in student debt, although there was no mention of student loans in the coronavirus and economic aid plan that the administration released last week.
âIt’s a great relief, but it’s not the end of what we need,â Yu said, noting that the payment hiatus allows for âbreathingâ to consider major changes to the student loan system. âAt the end of the day, we need a cancellation and we need to make sure that all borrowers are included in this cancellation,â she said.