Student loan payments: Why experts think Biden will extend the hiatus
More than 40 million borrowers are still waiting to hear whether President Joe Biden will extend the student loan payment freeze, even though the current moratorium is due to expire in just two weeks.
In June, Education Secretary Miguel Cardona said borrowers would be given “ample notice” of any extensions. On Tuesday, however, all Cardona could say was that an announcement was coming “soon.”
“Although I don’t have an announcement here today, I will let you know that we are having daily conversations with the White House and borrowers will hear directly from us soon when a decision is made,” he said. he told CBS News’ Gayle King. .
Even without an official word, many analysts believe Biden will continue the current freeze, possibly until the end of the year or even later.
Michele Streeter, senior director of college affordability at the Institute for College Access and Success, told The New York Times last week that “it’s very likely there will be another extension.”
Here’s what you need to know about federal student loan repayments, including signs the pause will be extended, what happens to defaulting borrowers and whether Biden will push for more student debt cancellation.
To learn more about student debt, find out if you are eligible forIf you during the break, and the pros (and cons) .
Three signs that student loan payments will continue to be suspended
President Biden has yet to indicate whether he will extend the pause on student debt repayment, but there are several clear indications that he will.
1. Inflation remains a major problem
As the country has turned its back on the coronavirus pandemic, the White House has repeatedly said decisions about suspending student loans will be driven by what’s happening with the economy.
While inflation slowed in July, food, shelter and other essential services are still very high. On Aug. 10, grocery store prices rose 13.1% year over year — the biggest increase since March 1979, according to the Bureau of Labor Statistics.
And many economists are still predicting that a recession could be coming.
“Excessive inflation has driven up the prices of almost everything, and most borrowers are unlikely to be able to repay their loans,” Tony Aguilar, CEO of student loan repayment app Chipper, told sister site from CNET, NextAdvisor. “A further extension also gives the White House more time to review potential pardon plans.”
2. Lenders have been asked to postpone contacts with borrowers
“The situation is that we are almost 30 days away from the expected recovery and the [Department of Education] told repairers to suspend trade-in communications for the past few months,” Scott Buchanan, executive director of the nonprofit Student Loan Servicing Alliance, told The Wall Street Journal on July 25.
“Perhaps the department expects the White House to kick down the street,” Buchanan said.
Zack Friedman, CEO of online financial marketplace Mentor, wrote in Forbes that in theory, “Biden could continue to extend student loan relief through multiple executive orders, creating a student loan payment pause” forever. “”.
Or at least until he leaves office.
3. Another extension could attract young voters to the midterm elections
Despite improving job numbers and lower gas prices, Biden’s approval ratings haven’t been great heading into the midterm elections. On August 9, 55% of Americans disapproved of the president, according to Reuters.
Throwing a bone to the more than 40 million Americans with federal student loans could help bolster the appeal of Democrats on Nov. 8.
How long could the student loan repayment freeze be extended?
If Biden hopes to drum up support for Democrats in the midterm elections, he will likely extend the current freeze at least through the end of the year.
“Our outlook … assumes the federal student loan payment moratorium will last through January 2023,” Anthony Noto, CEO of student lender SoFi, told investors on an Aug. 2 earnings call.
Some experts believe Biden will push it even further, possibly until July 2023. That’s the earliest new regulations governing student loans could start to take effect.
It would also give the White House more time to try to drum up support for more federal student loan forgiveness.
What happens to defaulting borrowers?
Federal student debt repayments have been suspended for more than two years, meaning interest has not accrued and collections on defaulted debt have been suspended.
Borrowers in default will automatically receive a “fresh start”, according to a statement from the US Department of Education. Their accounts will be restored to good standing and any defaults will be “healed”, allowing them to repair their credit and gain access to programs such as income-contingent repayment and civil service loan forgiveness, that benefit those who work for non-profit organizations.
“During the break, we will continue our preparations to give borrowers a fresh start and ensure that all borrowers have access to repayment plans tailored to their circumstances and financial needs,” said Miguel Cardona, Secretary of the education, in a press release.
Will there be additional student debt forgiveness?
During the campaign, Biden said he would support legislation canceling a minimum of $10,000 in federal loans per borrower. Democratic lawmakers would like to see that amount increased to $50,000, Bloomberg reported, in hopes of swaying young voters in November.
If he forgave more student debt, Biden would likely cap eligibility for people earning $125,000 or $150,000 a year.
Republicans in Congress have argued that the president lacks the power to write off billions in student debt and introduced legislation to block it.
But there are signs the White House sees things differently: Following the Department of Education’s overhaul of its civil service loan forgiveness program in October 2021, more than 750,000 borrowers had their loans students go out, totaling more than $18.5 billion as of May 2022.
In 2019, the Predatory Student Loans Project sued then-Education Secretary Betsy DeVos, claiming her office blocked Borrower Defense Program applications until repayment. which helps to cancel federal student loan debt if the borrower has been defrauded by their school.
In July, the Biden administration accepted the plaintiff’s arguments that the Education Secretary has “considerable discretion” to write off federal student loan debt, Forbes reported.
On August 4, a federal judge granted preliminary approval to a settlement that would provide $6 billion in debt relief to some 200,000 borrowers who say they were defrauded by for-profit colleges like Lincoln Tech, American National University and Keizer University.