Biden Extends Pause On Student Loan Payments Through August 31

Topline

President Joe Biden on Wednesday announced the nationwide moratorium on federal student loan repayments will be extended again, from May 1 to August 31.

Federal student loan payments haven’t been required since March 2020.

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Key Facts

Biden announced the extension in a video posted to Twitter Wednesday morning, saying the continued pause “will help Americans breathe a little easier as we recover and rebuild from the pandemic.”

Until the new deadline, borrowers won’t face additional interest, collections or be forced to make payments on federally backed student debt.

Former President Donald Trump first enacted the freeze at the beginning of the coronavirus pandemic in March 2020.

Crucial Quote

“I know folks were hit hard by this pandemic, and that we’ve come a long way in the last year, but we’re still recovering from the economic crisis it caused,” Biden said Wednesday.

Key Background

The latest extension marks the sixth time the federal government has suspended monthly student loan payments during the pandemic and highlights lingering uncertainty around the economic recovery. Though administration officials repeatedly insisted the pause in August would be the last, some lawmakers—including Senate Majority Leader Chuck Schumer (D-N.Y.)—urged the president to announce another extension in December, as new Covid cases jumped to their highest levels in more than three months. Pressure once again mounted in recent weeks with the looming expiration, with some industry experts slamming the president for waiting to announce another extension. “We’re 30 days out—this is ridiculous,” Natalia Abrams, executive director for the nonprofit Student Debt Crisis Center, told the New York Times earlier this month. “Borrowers are checking the news every day so they can plan their lives.”

Tangent

In a report released last month, economists at the New York Federal Reserve predicted borrowers benefiting from nearly $200 billion in waived payments through May will face rising delinquencies on student loans—and other debt—once the unprecedented relief ends. In a statement on Wednesday, Biden cited the Fed report as motivation for the latest extension. Since the forbearance started, a majority of borrowers of direct loans, which represent some 90% of the student-loan market, haven’t made payments, including about 83% of those facing growing student debt before the pandemic and 66% of those who were paying down their balance, according to the report. Despite a healthier economy going forward, the economists said credit-report data on repayment of Family Federal Education Loans, or federally backed private loans not covered under the moratorium, indicate there will likely be a “meaningful rise” in delinquencies on direct loans once the freeze expires.

What To Watch For

Policymakers have considered several proposals to soften the eventual end of the forbearance program, including temporarily not reporting missed payments to credit bureaus and outright cancellation of federal student loans. “Suspending the reporting of delinquencies will certainly . . . allow borrowers to better ease into repayment, but these repayment issues will still exist under the surface,” Fed researchers cautioned last month, noting the concerns have motivated a debate on student loan cancellation that’s likely to gain traction once relief expires.

Big Number

$1.3 trillion. That’s roughly how much debt is outstanding from Direct federal student loans, compared to $1.5 trillion in overall student-loan debt, according to the New York Fed.