For nearly 20 months, most federal student loan borrowers have not had to pay anything on their loans, and no interest has been accruing, thanks to the benefits of the CARES Act – legislation passed in March 2020 in response to the deepening economic crisis associated with the Covid-19 pandemic.
The CARES Act’s student loan relief was originally supposed to last only six months. But former President Trump, and later President Biden, extended the student loan payment and interest pause several times.
The Biden administration’s most recent extension of the payment pause ends on January 31, 2022. Administration officials have been clear that this would be the “final” extension of relief.
But is it possible that Biden could extend the pause again?
Prior justifications for extending the student loan pause
Congress enacted the CARES Act last year in response to the economic upheaval brought about by the pandemic.
Lawmakers believed that, as a matter of public policy, student loan borrowers should not have to make payments on their loans while so many millions of people were dealing with economic and public health disruptions.
That economic and public policy rationale continued through multiple extensions of the payment pause.
Before the Biden administration enacted the most recent extension, officials noted that they would be looking at economic and pandemic indicators when deciding whether further relief was warranted.
Secretary of Education Miguel Cardona said in May, before the most recent extension of the CARES Act’s student loan relief,
“We’re looking at [a further extension]. Obviously, we’re going to always take the lead from what the data is telling us and where we are as a country with regards to the recovery of the pandemic. [A further extension] is not out of the question.”
Given that the pandemic continues in many parts of the country, and economic indicators – such as inflation and supply chain issues – suggest that Americans may continue having to contend with disruptions in the near term, the data could support an argument that further student loan relief may be warranted.
Surveys show student loan borrowers are not ready to resume repayment
Recent surveys suggest that many student loan borrowers are not financially prepared to resume repayment on their loans.
In a nationwide survey of over 33,000 student loan borrowers conducted by the Student Debt Crisis Center and Savi, two-thirds of which were fully employed, nearly 9 out of 10 borrowers said they are not financially secure enough to resume payments on their student loans this winter.
Most respondents also said that the payment pause has been critical to their financial well-being during the last 20 months.
“As the economy recovers, even fully-employed student loan borrowers are not financially secure enough to make payments again,” said Natalia Abrams, President and Founder of Student Debt Crisis Center. “When the payment pause ends on February 1, borrowers will have the rug pulled out from under them as they work to get back on their feet.”
The survey echoes similar results produced from another survey earlier this year, also by Savi, before the Biden administration’s most recent extension of the payment pause. 90% of the respondents in that survey also said they would have difficulty resuming repayment on their loans.
Biden administration officials have been clear that the student loan pause is ending
Despite the economic indicators and the fact that many student loan borrowers may be unprepared for repayment to resume, the Biden administration appears to be moving forward with ending the payment pause.
“We can expect that many, many borrowers will not be eager to return to repayment when they have been led to believe, or even to hope, that was never going to happen,” said Richard Cordray, the Chief Operating Officer of Federal Student Aid, earlier this fall. “Getting over that psychological hurdle with millions of Americans may be a much harder job than we know.”
The Department of Education may be considering initiatives to help ease borrowers into repayment.
As first reported by POLITICO, the administration is considering a multi-month grace period during which borrowers will not be penalized for late payments, as well as streamlined options for borrowers to apply and recertify for income-driven repayment plans.
The Biden administration has also made moves to prepare loan servicers for the resumption of repayment.
The Education Department recently extended its contract with FedLoan Servicing, one of its major student loan servicers and its primary contractor for the Public Service Loan Forgiveness (PSLF) program.
FedLoan’s contract with the Department was scheduled to expire in December. The servicer will now stay on through much of 2022, allowing it to continue servicing federal student loans during the transition to repayment.
There may also be political reasons for not extending the payment pause further. Given past remarks by Biden administration officials that economic indicators could support extending the student loan relief further, allowing for another extension could be a tacit acknowledgment that the status of the economy and pandemic are still not ideal.
The bottom line is this: all signs point to the student loan pause ending on January 31, 2022. Borrowers should expect to resume repayment in February and should plan accordingly.