The Biden administration has struggled to end the pause on loan payments as the recovery of the pandemic deficit continues.
Jose M. Osorio | Tribune News Service | Getty Images
The US Department of Education has extended the pay break on federal student loans for the sixth time since the pandemic began more than two years ago.
This time, lenders have been told they will not have to resume their accounts until September. So, here is what lenders need to know.
Forgiveness of student loans could still happen
Despite improvements to the economy since the break in invoices for federal student loans was first announced in March 2020, President Joe Biden has said it remains too early to ask lenders to start over.
“We are still recovering from the pandemic and the unusual economic disruption that it caused,” Biden said in a statement on April 6 announcing the last break.
At the same time, part of the delay seems to be due to the fact that exemptions for forgiveness of student loans are still ongoing in the White House.
Biden is under tremendous pressure to reduce some of the country’s $ 1.7 trillion in external education debt. Senate Majority Leader Chuck Schumer, DN.Y., and Sen. Elizabeth Warren, D-Mass., Urges him to cancel $ 50,000 per lender.
Nearly 66% of likely voters are in favor of the president forgiving student debt, with more than 70% of Latinos and Black voters in favor, a recent poll found.
White House staffer Ron Klain said last month that the administration wanted to reach a decision on loan forgiveness before repaying payments.
“The president will look at what we need to do about student debt before the break expires, or he will extend the break,” Klain said on the podcast “Pod Save America” in early March.
The break could be extended again
Because the payment break has been extended so many times, experts say lenders will not take the latest announcement of bills resuming in September too seriously.
“What is a lender to believe or plan more if the government is constantly changing its mind?” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan providers.
And this time, the payments are scheduled to start again just a few months before the midterm elections, which many have said could lead to troublesome headlines for Democrats and a lower turnout at the party polls.
“I do not see them starting to pay back two months before an election,” said Higher Education expert Mark Kantrowitz.
Most loans will not collect interest
Interest will remain suspended on federal student loans in the Direct program. During the period, lenders saved nearly $ 200 billion, the Federal Reserve found.
However, holders of federal loans for family education and private student loans are not covered by the policy, which means that their debt will continue to grow with interest rates.
It does not make sense for some to pay through
Borrowers who can pay it can choose to take advantage of the temporary suspension of interest to pay off the principal of their student debt. But there are exceptions, experts warn.
If you are seeking forgiveness for public service loans or are on an income-driven repayment plan, it is a bad idea to continue making payments, experts say.
This is because the payday months count towards the eventual debt forgiveness that these programs lead to – whether you pay or not, and so any money you direct to your loans during this delay simply reduces the amount of forgiveness for which you will eventually be entitled.
In the meantime …
The Covid pandemic has taught us how important it is to have a healthy savings account to fall back on, according to experts. People should try to build up to at least six months of emergency savings, they say.
With interest rates on most federal student loans at zero, it may also be a good time to make progress in paying off more expensive debts. The average interest rate on credit cards is currently more than 16%.
However, make sure you have enough in your emergency savings account before tackling credit card debt, said Ted Rossman, an industry analyst at Creditcards.com.
That’s because your credit limit should not be related as a safety net.
“A lot of people have cut their credit card limits unexpectedly over the past year because lenders are particularly concerned about risk,” Rossman said.