President Joe Biden and the U.S. Department of Education have announced an extension of the federal student loan payment freeze until August 31, 2022, in an effort to assist borrowers in achieving greater financial security and to support the DOE’s efforts to continue improving student loan programs.
The forbearance was previously set to expire May 1, 2022, but President Biden says he recognizes the country is still recovering from the pandemic and the unprecedented economic disruption it caused. Because of that pause in repayments, 41 million Americans were able to breathe a little easier during some of the toughest days of the COVID-19 pandemic, Biden says.
“If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggests that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability,” Biden says. “Accordingly, to enable Americans to continue to get back on their feet after two of the hardest years this nation has ever faced, my Administration is extending the pause on federal student loan repayments through August 31, 2022.”
In a statement, the DOE says the extension will provide additional time for borrowers to plan for the resumption of payments, reducing the risk of delinquency and defaults after restart. During the extension, the DOE says it will continue to assess the financial impacts of the pandemic on student loan borrowers and prepare to transition them smoothly back into repayment.
Borrowers with paused loans will be allowed to receive a “fresh start” on repayment by eliminating the impact of delinquency and default—allowing them to reenter repayment in good standing, the DOE says. The DOE also says it will continue to provide loan relief, including to borrowers who have been defrauded by their institutions and those eligible for relief through the Public Service Loan Forgiveness program.
“The Department of Education is committed to ensuring that student loan borrowers have a smooth transition back to repayment,” says U.S. Secretary of Education Miguel Cardona. “This additional extension will allow borrowers to gain more financial security as the economy continues to improve and as the nation continues to recover from the COVID-19 pandemic. It remains a top priority for the Biden-Harris Administration to support students, families, and borrowers—especially those disproportionately impacted by the pandemic. During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs.”
An analysis by the Committee for a Responsible Federal Budget suggests the loan pause has resulted in the effective cancelation of significant amounts of student debt thus far, namely through the suspension of interest accrual. The CRFB estimates a typical recent medical or law school graduate will effectively receive anywhere from $30,000 to $50,000 of debt cancellation, while those with a bachelor’s degree or who were unable to graduate will receive $2,000 to $4,500 in debt cancellation, assuming that a recent graduate has not yet begun repayment.
The CRFB’s analysis goes on to suggest the extension of the forbearance program may have unintended consequences that see higher-income earners benefit the most. This is because, although only 7% of borrowers have over $100,000 of debt, their debt accounts for almost 40% of the total outstanding amount. On the opposite end, those with $0 to $20,000 of debt, who presumably are working in lower-paid fields, account for 53% of borrowers and make up just 13% of the amount outstanding. And in the middle, those with $20,000 to $40,000 of debt account for 21% of borrowers and 17% of the outstanding debt, while those with $40,000 to $100,000 of debt account for 18% of borrowers and 32% of the outstanding debt.
Despite this, most adults in the U.S. (57%) want President Biden to make student loan forgiveness a priority—a majority that increases by 27 points to 84% when considering those with federal student loans, according to a January CNBC/Momentive “Invest in You” poll. Overall, nearly two-thirds (62%) of adults in the U.S. say they approve of President Biden’s decision to pause student loan repayment until May 1st, which grows to 84% approval among federal student loan borrowers.
The respondents were split over what should happen next, with 69% of respondents who say President Biden should grant some type of student loan forgiveness. The survey found that 34% of the general public say all student loans should be forgiven, 35% say that student loans should be forgiven just for those in need and 27% say no student loans should be forgiven for anyone.