Since March 2020, federal student loan borrowers have benefited from total forbearance on monthly payments due to the COVID-19 pandemic. Many borrowers have had more room to breathe (financially, that is) for nearly the past two years. This has meant more time to save money, invest money and pay down other debt.
Fortunately, federal student loan borrowers can celebrate once again: the current student loan administrative forbearance has been extended through August 31st, 2022. The original date for student loan payments to resume was May 1st, 2022. This means that borrowers have an additional 4 months to get their finances in order before the payments resume later this summer (woohoo!).
Citing the continued COVID-19 state of emergency as well as the “economic disruption it has caused” as the reason for the extension, the Biden administration has decided to pause payments once again. Millions of borrowers have been adversely affected by the pandemic as well as rampant inflation, which has sent the cost of housing, groceries, and gas skyrocketing.
While many prominent Democratic leaders welcome this extended payment pause, many see this as a path to sweeping student loan forgiveness for all borrowers.
Let’s take a look at what updates have been circulating from Congress and how this has led to the new extension on the payment pause.
Congress Puts More Pressure on Biden
Fortune explains that three members of Congress had been petitioning the White House to make sure there’s sweeping student loan forgiveness.
Senate Majority Leader Chuck Schumer (D-N.Y.), Sen. Elizabeth Warren (D-MA), and Rep. Ayanna Pressley (D-MA) all petitioned for an additional extension on the student loan payment pause.
If student loan payments were to restart on May 1st, 2022 as originally planned, members of Congress have said that:
- Student loan borrowers are still not financially secure due to the COVID-19 pandemic, particularly with the emergence of new COVID variants.
- Nine million student loan borrowers in default could be subject to wage garnishment and other debt collection methods should they be financially unable to resume their payments.
- Black and Latinx households would face a disproportionate burden from quickly resuming student loan payments.
Luckily, it seems like pressure on the White House from these key political figures such as Representative Alexandria Ocasio-Cortez (D-N.Y.) and Senator Bernie Sanders (I-VT), may very well have played a role in the announcement of another payment pause.
Are Student Loan Borrowers Ready to Begin Repayment?
The short answer is no. According to the Student Debt Crisis Center, a nonprofit organization focused on student loan debt, a whopping 89% of fully employed student loan borrowers said they are not financially secure enough to resume payments. Hopefully, this additional 4-month pause will allow borrowers to prepare for their monthly payments once again.
Here are some other statistics about student loans and repayment from the nonprofit’s survey:
- 21% said they will never be financially secure enough to make any student loan payments again.
- 27% of respondents say that at least one-third of their income will go toward student loans when payments resume.
- 10% of respondents say at least half of their income will go toward student loan payments.
- 44% of fully-employed student loan borrowers said they cannot afford their monthly student loan payments or are in student loan default.
- 45% of respondents say their financial wellness is currently poor or very poor compared with 25% who said the same before the COVID-19 pandemic.
Is Total Student Loan Forgiveness Possible?
While there has been some $16B of targeted student loan forgiveness that’s taken place within the past year, only specific borrowers have benefited. If you fall into one of these categories, you might be eligible for total forgiveness:
- Borrowers who attended now-defunct schools
- Borrowers with complete and permanent disabilities
- Borrowers who are public servants, such as teachers, firefighters, or social workers, under the Public Service Loan Forgiveness program (PSLF)
Progressives in the House of Representatives like Alexandria Ocasio-Cortez (D-N.Y.) and members of the Senate like Elizabeth Warren (D-MA) are pushing Biden to make good on his campaign trail promises to cancel up to $10,000 per borrower, regardless of employment or socioeconomic status. So far, we haven’t seen any action by the Biden administration to make this happen.
The Bottom Line
With the uncertainty of the COVID-19 pandemic, record inflation, and economic instability as a result of the Russia-Ukraine conflict, an additional extension on the existing COVID-19 student loan payment forbearance is certainly welcomed by millions of borrowers.
There are many Americans who are still facing financial hardship from the onset of the pandemic in March 2020. Is yet another extension on the student loan payment pause or widespread cancellation possible? We’ll find out!
Our advice? Prepare yourself and your finances now for payments to resume on 8/31/22. We will be sure to update this article again should any new developments arise!