Yesterday President Biden announced that he would be extend the current student loan payment break on federally administered loans through 2023. The pause, which has been in effect since March 2020 and was due to end next month, also set interest rates at zero on federal government-held student loans. and suspended all collection efforts against borrowers. in default.
Here’s what borrowers need to know about the latest extension.
Student loan suspension extended again due to legal battle over Biden’s one-time student loan forgiveness plan
Biden decided to extend the hiatus again because federal courts blocked his unique student debt forgiveness initiative, which would undo $10,000 or more federal student loan debt for tens of millions of borrowers.
The administration calls on the United States Supreme Court, who may have the final say on the legality of the program. Today, a coalition of progressive organisations, unions and borrower advocacy groups filed an amicus brief with the nation’s highest court, urging the court to rule in favor of the administration and allow the student loan forgiveness program to continue.
“As this country emerges from the COVID-19 pandemic, American workers and middle classes are counting on the President to deliver on his promise of student debt relief,” said Persis Yu, Deputy Executive Director and General Counsel of the Student Borrower Protection Center, in a statement. “The Amici Collective is on the front line helping borrowers survive the financial devastation caused by the double whammy of the broken student loan system and the COVID-19 pandemic. Restarting repayment without cancellation will expose millions of borrowers to default and deprive too many of their wages, Social Security benefits and earned income tax credit. These borrowers deserve better than to be treated like political pawns. We are confident that the Supreme Court will see through the political chicanery and allow this essential program to provide the relief that 40 million working and middle class borrowers desperately need.
The exact duration of the student loan suspension extension is not set in stone
Unlike past extensions of the student loan hiatus, Biden’s latest extension doesn’t necessarily have a firm end date. According to a statement from the Ministry of Education, “payments will resume 60 days after the ministry has been given permission to implement the program or the dispute has been resolved.” This means that, in theory, payments could resume in a few months if the Supreme Court issues a final ruling on the matter soon.
But a final decision may not come until this summer, and the Department for Education says the extension of the payment pause may continue until June 30, 2023. Even then, however, borrowers would not have to start making payments before 60 days. after June 30th. This effectively means that borrowers can have until the end of August 2023.
Of course, as borrowers have already seen, these situations can change quickly. It is possible that the payment pause will end sooner, or potentially be extended again, even beyond the summer of 2023.
The benefits of student loan suspension will continue
Despite some uncertainty about the actual duration of the student loan suspension, the benefits of the suspension of payments will continue beyond December 31. This means that interest will continue to be set at zero for federally administered student loans and collection efforts against defaulting borrowers. will remain suspended.
In addition, months of suspended payments will still be eligible for student loan forgiveness under the Income Contingent Repayment (IDR) plans and the Public Service Loan Forgiveness (PSLF) scheme.
Extending student loan suspension may help PSLF borrowers
Since the payment break will continue to count for PSLF (provided a borrower is working in an eligible job and meets other PSLF program criteria), the extension beyond December 31 may be helpful for many borrowers applying for student loan forgiveness under this program.
The Education Department reported last week that many PSLF applications submitted in the weeks leading up to the October 31 deadline for the limited PSLF waiver are still being processed. Moreover, the new IDR account adjustment initiative – a separate but related program – has just been rolled out and is not expected to be fully implemented until July 2023. The IDR account adjustment effectively extends many of the benefits of the limited PSLF waiver, giving many borrowers a second chance to obtain relief under the temporary flexibilities.
Extended student loan suspension coincides with loan forgiveness regulatory reforms
The extended pause on student loans through the summer of 2023 will coincide with an extensive regulatory overhaul of key federal student loan forgiveness programs. In addition to the interim IDR account adjustment initiative, updated regulations Streamline and improve other federal student loan forgiveness and relief programs on a more permanent basis. This will include Public Service Loan Forgiveness (PSLF), Borrower Defense Until Repayment and the Total and Permanent Disability Release (TPD) program.
The Department of Education will also release a new, potentially more affordable Income Contingent Repayment (IDR) plan and eliminate several events that trigger capitalization of interest on student loans.
These initiatives are expected to be in place by July 1, 2023.