Ministry of Education extends student loan payment suspension
Ministry of Education extends student loan payment suspension

The Biden administration confirmed this morning that it has extended the federal student loan payment pause through August 31, 2022, saying in a Press release that this extension will allow for a “responsible gradual reduction in pandemic relief”.

The extension gives federal borrowers an additional four months with no required payments or interest charges and marks the sixth time the forbearance period has been extended since its inception in March 2020.

Borrowers will receive a ‘fresh start’ upon repayment

President Biden confirmed the four-month extension this morning via a video on his Twitter account, saying the continued pause will “help Americans breathe a little easier as we recover and rebuild from the pandemic.” Until August 31, federal student loan payments are not required, interest will not accrue, and collection activities will remain on pause.

The Department of Education news release also says the department will allow federal borrowers with delinquent loans and delinquent payments to return to repayment in good standing in September.

“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,” the Education Secretary said. , Miguel Cardona.

“The four-month delay comes at a crucial time for the American economy and Americans’ wallets, giving American consumers extra cash as inflation slashes their purchasing power the most in 40 years,” says Sarah Foster , exchange rate analyst. “It could also open the administration up to some pushback, with critics likely saying borrowers and the financial system no longer need the stimulus at a time when 2% of workers with bachelor’s degrees or above are unemployed. .”

The ministry will also strengthen the liability of repairers

Along with the more immediate benefits for borrowers, the department also says it will use the pause to continue to improve oversight and accountability of service agents. The extension comes days after the Consumer Financial Protection Bureau sanctioned Edfinancial Services for misleading borrowers about public service loan forgiveness options, which the Department of Education considers an area needing improvements.

“[Federal Student Aid] will establish new partnerships to ensure that borrowers working in the public service are automatically credited for progress towards forgiveness, eliminating the paperwork that prevents many borrowers from obtaining assistance,” the press release reads. “The FSA will also continue to transfer loans to service agents who agree to work under new, stricter liability rules.”

Many Democrats had asked for an extension until the end of 2022

Prominent Democratic lawmakers had urged President Biden to extend the payment break or enact student loan forgiveness, and the upcoming midterm elections have added urgency to those demands.

Just days ago, a group of nearly 100 Democratic members of Congress sent a letter to the president, urging him to “provide meaningful student loan forgiveness” and extend the forbearance period until “at least the end of the year.” The extension to August 31 is significantly shorter than those Democrats were asking for.

“The Biden administration is trying to thread the narrowest needles here,” says Mark Hamrick, Bankrate’s senior economics analyst and Washington bureau chief. “An irony is that the problem will reappear as this so-called pause is set to expire in the fall, again drawing attention to itself as election season really kicks into high gear.”

But even if the break doesn’t last as long as Democrats had hoped, this latest extension could still provide a boost. “The announcement gives the White House a key talking point ahead of the 2022 midterm elections: President Joe Biden is the only president in U.S. history who has not demanded that federal borrowers make payments,” says Foster. “With each passing extension, calls for the administration to do more in the form of forgiveness of some level of federal student loan debt have only grown. The Biden administration has made it clear that this decision has yet to be made. »

Borrowers would have more time to strengthen their finances during the break

An extension is likely to be welcomed by borrowers; According to a new Bankrate survey, nearly 3 in 4 borrowers eligible for federal forbearance said an extension would have a positive impact on their personal financial situation. Without having to repay a federal loan, borrowers may instead be able to repay private loans, reduce credit card debt, or build emergency savings.

However, borrowers can also choose to repay their federal student loans as scheduled without interest charges. “It’s inevitable that the federal student loan forbearance period will eventually come to an end,” says Foster. “Even if you only spend a few minutes getting to know your loan manager, seeing your balance, estimating your monthly payment, and rebalancing your budget, your future self will thank you. Any payment you can afford to make while your loan is still outstanding could make a significant dent in your principal balance.

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