Home Credit Card Loan Student loan payment break extended to August 31

Student loan payment break extended to August 31

Student loan payment break extended to August 31
Student loan payment break extended to August 31

In a widely anticipated decision, President Biden on Wednesday extended the suspension of federal student loan payments through August 31, marking the sixth extension in two years since the moratorium began in the wake of the coronavirus pandemic.

Payments were due to resume in May, but around 41 million people will now have a few more months interest-free on their loans. The administration also said it would help 7.5 million people get out of default on their federal student loans, sparing them from garnishment of wages, tax refunds and Social Security benefits.

“We are still recovering from the pandemic and the unprecedented economic disruption it has caused,” Biden said in a statement Wednesday. He added that “the additional time will help borrowers achieve greater financial security and support the Department of Education’s efforts to continue to improve student loan programs.”

Congressional Democrats had urged the administration to extend the pause, arguing that resuming payments would destabilize many borrowers who are unwilling to take on another bill amid rising food and gas prices. Republicans opposed the move as an unnecessary giveaway at a time when Biden says the economy is on solid footing.

“If loan repayments were to resume on schedule in May, analysis of recent Federal Reserve data suggests that millions of student borrowers would face significant economic hardship, and that delinquencies and loan defaults could threaten the financial stability of Americans,” Biden said.

Do you have federal student loans? Tell us what you’ve done since the payment freeze.

Economists say restarting student loan repayments will squeeze the personal finances of millions of adults. About $7.5 billion in student loan repayments have been forgiven each month for the past two years, according to a new analysis from the Federal Reserve Bank of New York. The massive forbearance program helps explain why, according to the JPMorgan Chase Institute, most families had more in their bank accounts at the end of 2021 than at the start of the pandemic.

According to New York Fed data, more than 4 in 5 people who borrowed directly from the government made little or no progress paying down their debt during the freeze, and only 5% repaid more than $5,000.

Compared to rent or mortgage payments, “student loan forbearance is a smaller monthly debt payment, but it’s more meaningful for low-income families,” said Fiona Greig, co-chair of the institute.

Renewed student loan repayments would force many Americans to cut spending or savings much like the savings rateor the share of Americans’ after-tax income spent on saving or investing, has plunged this year at its lowest rate in nearly a decade.

“Many borrowers will have to cut consumption once the student loan repayment moratorium ends, which will effectively slow economic activity and therefore impact everyone,” said Dora Gicheva, an economist at the University of North Carolina at Greensboro.

Gicheva said she also expects credit card debt to rise as people turn to credit cards to make ends meet when paying student loans, according to a upcoming analysis in Gicheva’s Journal of Money, Credit and Banking and economist Berrak Bahadir of Florida International University.

But for now, borrowers will have some breathing room.

The suspension benefited 41 million Americans. Among them are people who, before the pandemic, hadn’t made a payment on their federally held loans for nearly a year — defaults that would generally put them at risk of the federal government withholding a loan. part of their income. Instead, Congress gave those borrowers a pathway to get their loans back in good standing.

A provision of the Coronavirus Aid, Relief and Economic Security Act, or Cares Act, ensured that each month of suspended payments would count toward student loan rehabilitation, a federal program that erases a defect from a person’s credit report after nine payments. consecutive. Based on the length of the moratorium, borrowers have met the program conditions and are eligible to emerge from default.

But the Department for Education usually requires defaulting borrowers to submit an application, a step that consumer groups fear people will fall through the cracks. Advocates and lawmakers also worry that people who have rehabilitated their loans in the past and defaulted again will be excluded because the program is meant to be a one-time offering.

Education Secretary Miguel Cardona agreed to waive program requirements and restrictions, which ensures that people’s negative credit histories are erased without losing the ability to rehabilitate their loans. The decision covers all loans affected by the suspension of payments, including defaulted federal debt held by private companies known as Federal Family Education Loans Held for Business. The ministry said further details would be released in the coming weeks.

“The Department of Education is committed to ensuring student borrowers have a smooth transition to repayment,” Cardona said in a statement Wednesday. “This additional extension will provide borrowers with greater financial security as the economy continues to improve and the country continues to recover from the COVID-19 pandemic.”

Rep. Virginia Foxx (NC), the top Republican on the House Education and Labor Committee, criticized the execution of what the administration dubbed “Operation Fresh Start”. Foxx said the Education Department has not discussed its plans with Congress or its student loan officers.

“The Biden administration continues to rule by executive order without any regard for the consequences of its actions,” Foxx said in a statement Wednesday. “This ambiguous and flippant rollout will cause massive confusion among borrowers, likely causing further defaults. That’s what happens when reckless ambition replaces common sense.

The White House had reported that another expansion was in the works. During an appearance on the “Pod Save America” ​​podcast in early March, White House Chief of Staff Ron Klain noted the president would decide whether to use his executive power to cancel student debt “before the break expires, or he would extend the break.” Days later, the Department of Education told student loan managers who manage its portfolio to drop sending notices to borrowers about the May takeover.

Encouraged by these measures, the heads of the Senate and House education committees — Sen. Patty Murray (D-Wash.) and Rep. Robert C. “Bobby” Scott (D-Va.) — urged the administration to act. Murray said another extension would give the Department of Education more time to fix the repayment system with better options for people to manage their debt.

Senator Patty Murray urges Biden administration to extend pause on student loan repayments until 2023

Republicans initially agreed with the payment pause, but have cooled with politics as the economy has recovered and the cost rises above $100 billion.

Congressional Democrats, meanwhile, welcomed the White House decision; some too renewed calls for Biden to wipe out some of the $1.6 trillion in federal loans held by millions of Americans.

Senate Majority Leader Charles E. Schumer (DN.Y.) issued a joint statement with seven other lawmakers, including Sen. Elizabeth Warren (D-Mass.) and Rep. Ayanna Pressley (D-Mass.), Urging Biden to go no further.

“While the extension is welcome, an impending restart of student loan repayments in September underscores the importance of swift executive action on meaningful student debt cancellation,” the lawmakers wrote. “We continue to implore the President to use his clear legal authority to cancel student debt, which will help close the racial wealth gap, spur our economic recovery, and demonstrate that this government stands up for the people. “

The new extension means borrowers with Ministry of Education student loans will have their payments automatically suspended without penalty or accrued interest for the duration of the moratorium. Collections on defaulted loans will still be halted and any borrowers with defaulted federal loans whose wages are garnished will receive a refund.

The Trump administration in March 2020 gave borrowers the option to defer payments for at least 60 days as the pandemic hit the economy. Congress then codified the stay in the Cares Act and made it automatic. The Trump administration has extended the moratorium twice, and the Biden White House has done so four times.

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