The end of the student loan pause is fast approaching, as the Supreme Court nears a decision on President Joe Biden’s sweeping student loan forgiveness plan.
However, because of the complicated logistics of restarting payments coupled with a lack of sufficient federal funding, borrowers may receive some extended flexibilities as student loan payments begin to start up again in just a few months.
Here’s what borrowers should know.
Biden’s Extension Of Student Loan Pause Tied To Supreme Court Ruling On Student Loan Forgiveness
Most federal student loan payments have been halted since March 2020. The payment pause was first enacted under the Trump administration in response to the Covid-19 pandemic. The pause covered all government-held federal student loan payments, and also froze interest and suspended collections efforts against borrowers in default.
President Trump initially established the student loan pause using executive authority, which Congress then quickly codified when it passed the CARES Act. Congress originally envisioned the student loan pause lasting six months. But President Trump, and subsequently President Biden, extended the relief several times under a provision of the HEROES Act of 2003. That statute provides flexibility to the Education Department to “waive” or “modify” federal student loan programs in response to a national emergency.
Biden’s most recent extension of the payment pause came about as a result of a legal dispute over his separate student loan forgiveness plan, which could wipe out up to $20,000 in federal student loan debt for millions of qualifying borrowers. That plan, also tied to pandemic relief and enacted under the HEROES Act, was challenged in two lawsuits brought by Republican state officials and conservative-leaning legal organizations, which wound up before the Supreme Court earlier this year. The Biden administration extended the student loan pause until 60 days after either June 30 or the date that the Supreme Court issues a ruling on the student loan forgiveness initiative. A decision is expected in June.
But the ambiguity of the student loan pause end-date, particularly in light of the many prior last-minute extensions of relief under both the Trump and Biden administrations, has left borrowers confused about when, exactly, student loan payments will resume.
In addition, consumer advocates and Education Department officials have expressed growing concern about the ability of both the government and its contracted student loan servicers to abruptly “turn on” student loan payments and interest for nearly 40 million borrowers simultaneously — something that has never been done before. The concerns have only been exacerbated as the department has struggled to contend with a deepening funding crisis following Congressional budget legislation last December that flat-lined appropriations for the department’s Office of Federal Student Aid.
Biden Officials Considering Extending Some Student Loan Pause Flexibilities
In light of the potential chaos that could result from a rushed or botched restart of student loan payments, Biden officials are considering a number of possible extensions and flexibilities to soften the end of the student loan pause. As first reported by POLITICO last week, these plans may include the following:
- Student loan servicers will not start charging interest again until September.
- Monthly payments won’t resume until October, to allow sufficient time for borrowers to receive billing statements prior to actual payment due dates. So while the payment pause technically is set to end this summer, borrowers may not actually have to start repaying their loans again until the fall.
- Borrowers may have some sort of grace period after repayment resumes, during which time they wouldn’t be penalized (such as through late fees, negative credit reporting, or falling into default) for missing a payment. The length of this grace period is still being determined, but could be anywhere from three months to a year after payments resume. This could effectively extend some of the default-associated protections of the student loan pause well into 2024.
- Student loan servicers may be authorized to write off small student loan balances of $100 or less.
None of the details have been finalized, according to the recent reporting, so these plans could be tweaked or changed in the coming months.
Latest Wrinkle In Student Loan Forgiveness and Student Loan Pause Challenges
The uncertainty borrowers are facing regarding the student loan pause is just the latest example of an unprecedented situation. Most federal student loan borrowers have not had to make any payments in over three years. In the meantime, Biden’s signature student loan forgiveness plan has been blocked by federal courts since last year.
The student loan pause and Biden’s student loan forgiveness plan are also facing new challenges. Republicans in Congress are trying to repeal both initiatives through multiple legislative processes. And a new lawsuit filed by a student loan refinancing company is seeking to end the student loan pause entirely.
If the Supreme Court ends up striking down Biden’s student loan forgiveness plan next month, officials have given no indication yet that another extension of the payment pause is under serious consideration.
Further Student Loan Forgiveness Reading
GOP Targets These Student Loan Forgiveness Plans As Debt Limit Standoff With Biden Escalates
Education Department Sends Student Loan Forgiveness Emails To Next Group Of Borrowers Covered By Settlement
What The Supreme Court’s Latest Move Means For Student Loan Forgiveness
4 Critical Student Loan Forgiveness Dates Borrowers Should Know About
Read the full article here
