Federal student loan payments will be repaid to approximately 37 million borrowers in just over a month. But with the fast-paced end to the May 1 pay cut coming to an end, signals have been mixed over whether this deadline will be extended, leaving millions of borrowers in limbo with financial preparations.
Federal student loan payments they first stopped in the spring of 2020 when the coronavirus pandemic plunged the country into an economic crisis. Since then, it has been expanded several times, most recently by President Biden last December, when he pushed for the current one. May 1 restart date.
“I think it’s still at stake whether payments will be activated or not,” said Natalia Abrams, president and founder of the Student Debt Crisis Center. “If they are, borrowers are not ready to resume payments.”
Last year, there were several rounds of communications before the scheduled restart to help prepare borrowers, although in the end the pause was lengthened.
The Department of Education has said it will continue to communicate directly with borrowers with clear and timely updates on repayments. The CARES Act requires at least six notifications about resumption of payments, but all could be out by May. With the new deadline, there are concerns.
“Most of the borrowers we spoke to have not received any communication since near the end of January about the resumption of lending,” Abrams said. Without a clear decision, borrowers have become confused. “If they stop paying again, they have to do it sooner rather than later so that people can balance their household budgets.”
In early March, White House Chief of Staff Ron Klain told Pod Save America that a decision would be made on any executive action to forgive student debt before payments were resumed or the president would extend the pause. When asked about the forgiveness of student loan debt to CBS Mornings earlier this month, Secretary of Education Miguel Cardona said forgiveness is one thing but fix “broken system” it’s something they’re also working on.
“You really don’t want to restart repayments and a few months later forgive loans,” student loan expert Mark Kantrowitz said. “So they really need to figure out what the game plan is and then execute it.”
Several Democratic lawmakers have expressed concern over preparations for the resumption of payments or have called on the Biden administration to extend the pause.
More than 43 million borrowers have more than $ 1.6 trillion in student loan debt, according to the Department of Education. Nearly 37 million of those borrowers have not been required to make payments on their loan in two years, which is $ 195 billion in exempt payments through April, the Federal Reserve Bank of New York found.
In a recent survey by the Student Debt Crisis Center, 92% of full-time borrowers were worried about being able to pay their payments due to rising inflation when the May break ends. One in three borrowers said they have reduced spending on necessities such as food, rent and health care to prepare to resume payments.
“Pandemic relief has helped people survive the pandemic’s economic shocks, but their financial situation remains the same if not worse due to inflation,” said Cody Hounanian, executive director of the Crisis Center. of Student Debt. “So restarting payments would be a disaster.”
When the pandemic struck, nearly 100% of direct federal loans were in indulgence. As a result, previously delinquent loans, those in arrears but not in arrears, were marked as current. The New York Fed’s analysis warned that when tolerance ends, direct borrowers are likely to experience a “significant increase in delinquency” for both student debt and other debt.
“I think the Federal Reserve Bank of New York report was a little alarmist,” Kantrowitz said. “There will be some borrowers who will be late in their payments as before. The question is if there will be more?”
At the end of the down payment period, student loan experts have said that borrowers should focus on their budgets in preparation. They should also make sure that their student loan managers have the most up-to-date contact information.
For those facing ongoing financial hardship, there may be other options, such as deferrals, convictions, and income-based repayment plans for borrowers, even after the federal break ends. These options should be discussed with the borrower’s student loan manager.
Borrowers will already have about $ 5,500 canceled on May 1, thanks to loans that do not accrue interest during the break. The Committee for a Responsible Federal Budget, which has called for the resumption of student loan payments, found it would cost the United States more than $ 100 billion. They estimate that extending the break would cost an additional $ 50 billion a year.
- In:
- Biden Administration
- student loan
- pandemic
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