The Biden administration has been working to end the pause on loan repayments as the economy’s recovery from pandemic lows continues.
Jose M. Osorio | Tribune News Service | Getty Images
The US Department of Education has extended the pause on federal student loan payments for the sixth time since the pandemic began more than two years ago.
This time, borrowers have been told they won’t have to start paying their bills again until September. So here’s what borrowers need to know.
Despite the improving economy since the pause on federal student loan bills was first announced in March 2020, President Joe Biden said it was still too early to ask borrowers to start again to pay.
“We are still recovering from the pandemic and the unprecedented economic disruption it has caused,” Biden said, in an April 6 statement announcing the latest hiatus.
Meanwhile, the latest delay is announced as deliberations on canceling student loans are still underway at the White House.
Biden is under enormous pressure to reduce some of the country’s outstanding $1.7 trillion education debt. Senate Majority Leader Chuck Schumer, DN.Y., and Sen. Elizabeth Warren, D-Mass., are pushing Le to cancel $50,000 per borrower.
Nearly 66% of likely voters favor the president’s student debt cancellation, with more than 70% of Latino and black voters in favor, according to a recent poll. found.
White House Chief of Staff Ron Klain said last month that the administration wanted to make its decision on whether to cancel the loan before reactivating payments.
“The president is going to look at what we should do on student debt before the break expires, or he’ll extend the break,” Klain said. mentioned on the “Pod Save America” podcast in early March.
Because the payment pause has been extended so many times, experts say borrowers are unlikely to take the latest announcement of the resumption of bills in September too seriously.
“What more can a borrower believe or expect when the government keeps changing its mind?” mentioned Scott Buchananexecutive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.
And this time, payments are set to resume just months before the midterm elections, which many observers say could trigger troubling headlines for Democrats and a drop in voter turnout for the party.
“I don’t see them going back to paying back two months before an election,” higher education expert Mark Kantrowitz said.
Yet holders of federal home education loans and private student loans aren’t covered by the policy, meaning their debt will continue to grow with interest.
Borrowers who can afford to pay can choose to take advantage of the temporary interest suspension to repay the principal of their student debt. But there are exceptions to this strategy, experts warn.
This is because the months of the payment pause count towards any debt forgiveness that these programs lead to – whether you pay or not, and so any money you direct to your loans during that pause simply reduces the amount of the discount for which you will eventually be entitled.
What’s more, the The Covid-19 pandemic has taught us how important it is to have a healthy savings account to fall back on, experts say. People should try to build up at least six months of emergency savings, they say.
With interest rates on most federal student loans at zero, it can also be a good time for people to make progress in paying off more expensive debt. The average interest rate on credit cards is currently higher than 16%.
However, you should make sure you have enough money in your emergency savings account before tackling credit card debt, says Ted RossmanIndustry Analyst at Creditcards.com.
This is because your credit limit should not be viewed as a safety net.
“Many people have seen their credit card limits unexpectedly reduced over the past year, with lenders particularly concerned about risk,” Rossman said.