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Biden Extends Student Loan Pause: Here’s What It Means for You

President Biden announced on December 22, 2021, that his administration would be extending the student loan pause again until around August 30, 2023, unless the lawsuits are settled earlier than that.. He had previously said the ‘final' extension of the student loan payment and interest pause would end on January 31, 2022.

What does this mean for borrowers wishing to make long-term plans on how to pay back their student loans? We analyze what this unexpected pause means for borrowers, how it impacts those seeking forgiveness or full repayment and talk about if he could potentially extend it again.

How prior extensions of the payment pause have happened

Both President Trump and President Biden have cited the emergency authority given to them under the HEROES Act of 2003 to extend the moratorium on payments and interest.

President Trump started the pause on March 13, 2020. His announcement at a press conference sent consumer advocates, servicers and borrowers alike scrambling to understand what he meant as nothing like the payment pause had ever happened before.

Congress then codified his statement with the CARES Act, which suspended payments and interest until September 30, 2020.

The other extensions looked like this:

  • Trump Extension #1: October 1, 2020 – December 31, 2020
  • Trump Extension #2: January 1 – January 20, 2021
  • Biden Extension #1: January 20, 2021 – September 30, 2021
  • Biden Extension #2: October 1, 2021 – January 31, 2022
  • Biden Extension #3: February 1, 2022 – May 1, 2022
  • Biden Extension #4: May 2, 2022 – December 31, 2022
  • Biden Extension #5: December 31, 2022 – around August 30, 2023 (unless the courts rule on student loan relief lawsuits sooner)

The economic, operational and political incentives behind the student loan pause extensions

Understanding the reasons for prior extensions of the student loan pause is critical to understanding if it could happen again.

The first Trump extension made sense politically. President Trump wanted to win reelection, and if he had not extended the pause, student loan payments would have started again literally days before the November election. It seems likely that if he had won, payments and interest would have started again in January 2021.

With Biden's victory, the Trump administration made an operational decision to extend the student loan pause so the new President could make his own decision on what to do next.

President Biden then made an economic decision to extend the pause until September 30, 2021, when he and most everyone likely thought that the pandemic would be in the rearview mirror.

However, the Delta variant happened. President Biden's team at the Department of Education seemed to have done very little planning for payments and interest to start again. Another extension was needed to make the transition back to repayment as smooth as possible. Since most people are on holiday around December 31, the administration chose January 31.

This was to be the ‘final' extension according to the Biden administration. A day before the latest extension, the COO of Federal Student Aid tweeted out that payments would start again on January 31, 2022.

However, two big events happened that upended their planning.

President Biden extends the student loan pause after Omicron fears and pressure from his party

I think it's clear two big factors contributed to the President's extension to change his mind and extend the pause, even though the last one was to be the final extension: Omicron and the failure of his signature Build Back Better (BBB) bill to pass.

Both needed to happen to backtrack after calling the January 31 extension the ‘final' extension.

The President's authority to modify student loan programs without Congress is based on the HEROES Act of 2003. That requires a national emergency, and the Omicron wave certainly seems like it could qualify. If cases were at the levels of early Summer 2021, the national emergency would not be present, and Biden would have to rely on a different statute to pause student loans without Congress (this is the statute that progressives say gives the President power to cancel student debt).

Even with Omicron, student loans are usually not that important compared to other policy goals. That's why student loan reform and cancellation got left out of the President's signature domestic legislation is because other policies were viewed as more important by the administration.

Progressives in Congress were, of course, disappointed after Senator Manchin torpedoed the version of the bill they had hoped for. The student loan pause is something that does not need to be paid for if done through executive order, so the President could not say that he did not have the power to do something.

The Democrats face big headwinds in the 2022 midterms, and their voters were bound to be disappointed after the failure of BBB. Doing something additional to relieve the pressure on student loan borrowers was critically important if Democrats want to have a chance in 2022.

So the path of least resistance was to extend the student loan pause again.

Could Biden extend the student loan pause permanently?

No. That's because of the HEROES Act of 2003. There's likely a reason why the memo about the Presidential cancellation of student loan debt that was asked for in April 2021 hasn't come out yet. It's because the President (and Speaker Pelosi) believe that he cannot cancel student debt without Congress due to statutory restrictions. Even if he did, it would almost certainly be challenged all the way up to a 6-3 conservative majority Supreme Court.

Could there be another extension after this one?

If there's an Omega wave, then yes.

But consider the President's statement on this extension:

Now, while our jobs recovery is one of the strongest ever — with nearly 6 million jobs added this year, the fewest Americans filing for unemployment in more than 50 years, and overall unemployment at 4.2 percent — we know that millions of student loan borrowers are still coping with the impacts of the pandemic and need some more time before resuming payments.

White House statement, December 22, 2021

If he were to extend it further, he would be asking borrowers to begin repayment right before the midterms, which would be a bad idea politically.

If he extended it again after August 31, he would play into the hands of a likely Republican campaign strategy to paint the President as causing inflation from his pandemic economic support programs.

And according to Politico, days before this extension was announced, the White House adamantly refused to extend the student loan pause.

What changed between 12/18/2021 and 12/22/2021?

Omicron cases soared, particularly in big cities where a lot of Democratic voters live, and the BBB bill was defeated (at least in its current state).

Additionally, this extension was the shortest ever announced (besides Trump's extension right before Biden's inauguration).

President Biden and his team want to get back to normal, and he has a political incentive for this to be the final extension of pandemic student loan relief.

Should borrowers change their student loan repayment strategy after the pause extension?

In general, you should not deviate from your long-term plan. Borrowers seeking forgiveness will get added savings thanks to this extension.

Borrowers who have already refinanced their loans have been left out of relief for over two years. It makes sense why borrowers would be skeptical to leave the safety of the federal program.

However, one thing I've learned after advising thousands of borrowers over the past five years is that student loans are usually unpredictable. We're seeing a lot of borrowers refinance to rates below 3% due to fears that rates will be significantly higher once the pandemic pause has ended.

Twenty-year fixed rates a couple of years ago were around 4% to 5% for refinancing. Today they're below 3% for the best-qualified borrowers. It makes sense that some borrowers do not want to take the risk of those rates rising given their long-term repayment strategy.

Of course, it's equally reasonable to not leave the federal program if you plan to pay back your debt at this moment. It has to be your decision.

If you need help making it, the consultant team at Student Loan Planner would love to help you make a custom plan so you can invest some of the extra money saved from the unexpected student loan pause extension in getting good advice for your financial future.

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Comments

  1. Rachel Lapham January 12, 2022 at 6:33 PM
    Reply

    I am a 69 year old retired parent paying back a parent loan. My income dropped dramatically this year so now on social security only. I can’t afford my payment. I’m not sure what to do. I was with Navient. Can you advise please. Thanks

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