President Joe Biden and the Department of Education have announced an extension of the federal student loan payment freeze until May 1, 2022, citing the impact the pandemic is having on the economy.
In a statement announcing the policy extension, the president said that while the current jobs recovery has been one of the strongest ever, he knows millions of borrowers are still coping with the impacts of the pandemic and need some time before repayments begin.
“Given these considerations, today my administration is extending the pause on federal student loan repayments for an additional 90 days—through May 1, 2022—as we manage the ongoing pandemic and further strengthen our economic recovery,” Biden says. “Meanwhile, the Department of Education will continue working with borrowers to ensure they have the support they need to transition smoothly back into repayment and advance economic stability for their own households and for our nation.”
The extension will allow the administration time to assess the impacts of the Omicron variant on student borrowers and provide borrowers with additional time to plan for the resumption of payments, the Department of Education says.
Borrowers are living through an unprecedented economic period, suggests a Student Debt Crisis survey of more than 33,000 student loan borrowers. Even though over 68% of the survey’s respondents are fully employed, nine out of 10 student loan borrowers report they are not ready to resume payments in February. Respondents say student loan payments will eat a large portion of their income and prevent them from affording bills and such things as rent, car loans and medicine.
The study also found that 27% of respondents say one-third of their income, or more, will go toward student loans when payments resume next year. Some 21% say they will never be financially secure enough to resume payments again.
TIAA’s “2021 Nonprofit Student Debt” survey found that student debt is a significant source of negative emotions. A majority of workers (55%) still worry about their student debt. Three in 10 have only negative feelings about their student loans (31%).
Over a third of nonprofit and public sector workers (36%) say they will be unable to make their payments from either their take-home pay or savings, TIAA found. Additionally, 11% say they will need to turn to their friends and family for financial assistance. Another 11% say they will reduce or stop their retirement plan contributions, and 10% will have to ask for additional forbearance. The last 4% say they just aren’t sure at all where the money will come from.
When Biden announced the payment pause extension, he also urged federal student loan borrowers to do their part by taking full advantage of the Department of Education’s resources, which are intended to help borrowers ensure they’re prepared for payments to resume, says Jennifer Nuckles, SoFi at Work executive vice president and group business unit leader.
“We recommend employers consider themselves part of this call-to-action and use the next 90 days to consider the ways your organization might help ensure the workers you employ are ready to enter repayment, if you aren’t already doing so,” Nuckles suggests.
The Coronavirus Aid, Relief and Economic Security (CARES) Act included a provision that allows employers to provide $5,250 annually for an employee’s student loan repayment or tuition reimbursement through 2025. This new provision benefits both the employee and employer—the employee gets to avoid paying income tax on the student loan payments, while the employer gets a payroll tax exclusion.
Additionally, some companies have implemented programs that provide a matching contribution to employees’ retirement plans for every payment they make to their student loan debt. This will help to ensure employees aren’t forced to choose between paying off student loan debt today or building their retirement savings for the future.
“President Joe Biden’s decision to extend the pause on student loan repayment an additional 90 days underscores the urgent need for a holistic, employer-driven push for workforce-wide financial literacy in our country,” Nuckles adds. “Nearly every business relies on—and benefits from—the investment employees have made in higher education, whether that’s through obtaining professional certifications and/or earning undergraduate and advanced degrees; yet a majority of employers still don’t offer financial well-being benefits today.”