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White House Extends Student Loan Payment Pause Through August, Pledging to Give Borrowers ‘Fresh Start’ on Repayment

By Hugh T. Ferguson, NASFAA Senior Staff Reporter

By Owen Daugherty and Hugh T. Ferguson, NASFAA Staff Reporters

The Biden administration is once again extending the pause on federally-held student loan payments and interest accrual, this time keeping the benefit in effect through August 31. 

The announcement follows the White House’s continued extension of the loan moratorium on student loan payments and interest accrual set in place at the outset of the pandemic in March 2020. This latest extension now marks the second time that the Department of Education (ED) has extended the freeze past what was argued to be the “final” such extension of the program. In December, the payment pause was extended through May 1, 2022. 

"We are still recovering from the pandemic and the unprecedented economic disruption it caused," said President Joe Biden in announcing the extension through a press release as well as pre-recorded remarks. "If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggests that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans' financial stability."

As part of the extension, ED said the department will use the time to prepare to transition borrowers smoothly back into repayment by "allowing all borrowers with paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing."

NASFAA’s Vice President of Public Policy and Federal Relations Karen McCarthy applauded the extension in a statement and said it would provide targeted relief to borrowers in need.

“Communication leading up to the resumption of payments in September will be key for all borrowers. We urge the Department of Education to develop and roll out a smooth, efficient on-ramp to repayment. After more than two years without student loan payments, transitioning millions of borrowers back into repayment cannot happen at the drop of a hat,” she said. “At the same time, the department must examine the student loan system as a whole and how it can be improved for borrowers. We look forward to exploring ongoing solutions with our federal partners in the weeks ahead."

For months, advocates had been pushing ED to provide additional relief to borrowers in default. With the measure announced Wednesday, roughly 7 million borrowers who entered the pandemic in default will be in good standing on their student loans when payments eventually resume. 

The announcement follows numerous requests made by congressional Democrats and advocates who have pushed the administration to implement protections for student loan borrowers. 

Sen. Patty Murray (D-Wash.) and Rep. Bobby Scott (D-Va.), chairs of the Senate and House education committees, just last month asked the White House to continue the extension.  And another group of Democratic senators in November wrote to Education Secretary Miguel Cardona, urging the department to return defaulted student loan borrowers to good standing before payments resumed.

“Today’s announcement also offers millions of student loan borrowers a valuable opportunity to undo the extensive harm caused by a default,” Scott said. “I applaud the Biden-Harris Administration for providing a second chance for struggling student loan borrowers by eliminating the harms of default and delinquency and allowing them to reenter repayment in good standing.”

While the extension through August is welcome news for borrowers, most Democrats were urging the White House to issue an extension through the end of the year.

Republicans, on the other hand, have been increasingly frustrated by the continued extension and have sought to curtail the use of executive authority that has enabled the Biden administration to do so, even unveiling legislation that would aim to force the resumption of student loan repayments. 

Rep. Virginia Foxx (R-N.C.), the ranking member of the House education committee, issued a statement in response to the latest extension, arguing the coronavirus pandemic is no longer the reasoning behind the decision to issue another extension.

“This isn’t about the pandemic, this isn’t about targeted relief for struggling borrowers, it’s about setting the stage for blanket loan forgiveness,” she said on Tuesday, following reports that another extension was forthcoming. “President Biden is ruling by executive fiat. Clearly, he will do whatever progressives want when they want it. Respect for hardworking taxpayers and responsible borrowers be damned.”

Several economists initially pointed to the pause in student loan payments as something that would benefit the economy, a move that gave tens of millions of borrowers breathing room in their budgets at a time when the economy was ravaged by the pandemic. Now more than two years later, by most metrics the economy has rebounded and unemployment numbers are low.

Democrats say the economy has been fine without student loan payments, citing that as further evidence for an extension and for widespread student loan debt cancellation. 

Opponents of the payment pause have said it unfairly benefits those who chose to take out student loans and does nothing for a majority of the population who have no student loan debt and argue forgiveness would do little to further stimulate the economy. 

Additionally, many stakeholders have expressed concern about how easily the department and loan servicers can restart loan payments after more than two years. For borrowers who have been out of the habit, a lack of communication could cause problems. And for servicers, who may have reduced their staff amid the pause, a sufficient headstart to re-staff will be necessary. 

What’s more, the pause on payments will have an impact on how the government measures performance of the federal loan program. As  part of Biden’s recent budget request, even ED explained that measuring metrics related to the federal loan program following the expiration of the moratorium would be difficult to project. 

“These actions have largely insulated Federal student loan performance from economic disruption caused by the COVID-19 pandemic while reducing loan repayments remitted to the Department,” ED’s budget office noted. “There is great uncertainty regarding student loan performance and corresponding cost estimates once these measures expire.”

 

Publication Date: 4/7/2022


Ben R | 4/8/2022 8:13:35 AM

David V: That is part of the problem. Default rates are near zero and will remain there for several years following this moratorium, making assessing performance and applying any sort of accountability difficult without some alternative measure being implemented. The artificially low default rate makes it look as though every school regardless of student debt burden is doing terrific, whether their borrowers have any ability/intention to repay or not.

David V | 4/7/2022 10:0:12 AM

I wonder if schools default rate will now be lowered with this announcement, and when.

Andrew F | 4/7/2022 9:11:15 AM

It is nice that defaulted borrowers will get a fresh start before payments resume. The effective date of the fresh start would be very helpful as there are defaulted students enrolled this semester who could greatly benefit from regaining title IV eligibility.

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