President Joe Biden has once again extended the pause on federal student loan payments – this time until August 31.
This is the sixth extension since the start of the COVID-19 pandemic, and it comes weeks before the scheduled restart of payments on May 1, impacting millions of borrowers who were not required to make payments.
“We saw this expansion coming, and I think it leaves the door open for another expansion as well,” says Robert Farrington, Founder and CEO of The university investor. “Today’s announcement made it clear that Biden is using his powers under the HEROES Act, which requires there to be a national emergency. As such, as long as there is a national emergency, he can continue to prolong it.
A key part of the announcement includes a plan to remove delinquent and default status from all borrowers, effectively giving them a “fresh start” when they enter repayment. According to Farrington, this is a big win for borrowers who may have struggled to pay before the pandemic or had their tax refunds garnished.
“With this change, it will help many borrowers get back on track when payments start,” he says.
The Biden administration said it was extending the pause primarily because Americans are “still recovering from the pandemic and the unprecedented economic disruption it has caused.” If loan repayments were to resume on May 1, analysis of recent Federal Reserve data suggests that millions of student borrowers would struggle to get into repayment, according to a Statement from the White House.
Yet there is still a question mark surrounding widespread student loan forgiveness. Biden has made virtually no mention of it since the start of the year, prompting further concerns from defenders and borrowers that he goes back on one of his main campaign promises. Early in the 2020 presidential campaign, Biden had repeatedly said he supported the idea of waiving $10,000 per borrower. However, the experts we spoke to in late 2021 largely agree that borrowers shouldn’t count on it and should instead focus on ways to take control of their student debt now.
What does this extension mean for borrowers?
While this latest extension is an important development for student borrowers, you shouldn’t change how you approach your student loan debt at this time.
Instead, stay the course. If you used this break to prioritize other aspects of your finances, keep it up. Overall, experts recommend using those extra months to help divert money toward building up an emergency fund or paying off more pressing high-interest debt, such as credit cards or private student loans.
If you think you’re in a good financial position and want to pre-empt your student loan debt, Farrington recommends setting money aside in a savings account and making a lump sum payment just before payments are due. resume.
Either way, now is a good time to start planning for the resumption of payments. For example, make sure your personal information on your accounts is up to date – such as your address, phone number and email address – so you can stay up to date with any new information about your loans.
You also need to know what you owe, double-check your loan repayment dates and grace periods, and review your repayment strategy to see if it matches your current financial situation. Finally, start now to budget for the future for the resumption of payments. Consider any changes in your income and see if you need to cut spending in certain areas to make room for upcoming student loan repayments in your budget.
Currently, federal student loan repayments will resume at the end of August, so experts say you shouldn’t set your strategy based on the perceived likelihood of more student loan relief. arrived. But it’s something to watch over the next few months.