5 Reasons Biden May Extend the Payment Pause to 2023

Payments and interest on most federal student loans have been on pause for over two years now. Since March 2020, the CARES Act suspended payments and interest on government-held federal student loans, and stopped all collections efforts against borrowers in default.

Congress originally envisioned only a few months of relief, but the pause has been extended multiple times. President Biden’s latest extension is now extended until around August 30, 2023, unless the courts rule on lawsuits sooner than that.

There are growing signs that Biden is going to extend the student loan pause again. Top administration officials have repeatedly indicated that another extension is on the table, particularly if economic conditions would support it. This week, the Education Department told its contracted loan servicers not to initiate billing—the clearest sign yet that another extension may be coming.

Recent reporting suggests that the Biden administration is considering extending the student loan pause into 2023, possibly as far as July. There are several reasons such a long extension could actually happen.

1. Economic conditions may warrant extension of student loan pause

White House officials have repeatedly indicated that they would use economic data to gauge whether a further extension of the student loan pause should happen. The most recent economic data is not particularly encouraging for most Americans—inflation remains at historic levels, the housing market is cooling and the Fed is expected to raise interest rates again.

It’s not all bad news—gas prices are getting somewhat lower, and the job market remains steady. But ongoing global instability and the possibility of a looming recession suggests that many households may face economic uncertainty and sustained higher costs for some time. Adding in student loan payments could push millions of families over the edge.

2. Key student loan relief initiatives will not be fully implemented by August

There are several temporary or one-time student loan relief initiatives that are in various stages of completion. But none are expected to be fully implemented by August 2023. These initiatives include the following:

• The Limited PSLF Waiver, which temporarily expands eligibility for Public Service Loan Forgiveness. The waiver is available until October 31, 2022, although advocates are urging the Biden administration to extend this, as well.
• The IDR Account Adjustment, which will accelerate borrowers’ progress towards loan forgiveness via income-driven repayment (IDR) plans by allowing certain past periods of repayment, deferment and forbearance to count towards a borrower’s repayment term. The Education Department does not expect the program to be in full swing until the fall, and implementation may not be completed until January 2023 or later.
• Operation Fresh Start, which is an initiative to automatically remove millions of federal student loan borrowers from default before payments resume. The Education Department has not provided many details or a timeline for this, but anecdotal reports suggest the initiative is nowhere near complete.
• The proposed settlement in Sweet v. DeVos, a class action lawsuit brought by borrowers to resolve stalled Borrower Defense to Repayment applications, could result in billions of dollars in new student loan forgiveness. But the settlement must be approved by a judge, and that is not expected to happen until sometime this fall.

3. Regulatory overhaul of student loan programs won’t be effective until July 2023

The Biden administration released proposed regulations earlier this month to overhaul several critical elements of the federal student loan system, including the following:

• Public Service Loan Forgiveness (PSLF.
• Borrower Defense to Repayment.
• Closed School Discharges.
• Total and Permanent Disability (TPD) Discharges.
• False Certification Discharges.
• Interest Capitalization.

In addition, the administration is developing a new income-driven repayment (IDR) plan. Details of the plan could be released in a matter of weeks.

The regulatory overhaul process is long and complex, requiring multiple rounds of public input. Finalized regulations would not be effective until July 1, 2023. If the Biden administration wants these reforms—particularly a new Income-Driven Repayment plan—to be in place when borrowers resume repayment, an extension of the student loan payment pause to July 2023 would make a lot of sense.

4. Midterm elections make extension of payment pause politically dicey

The midterm elections are less than four months away, with control of Congress and state governments at stake. The Biden administration risks further alienating millions of younger voters if it allows federal student loan payments to resume weeks before an election. At the same time, extending the pause just past the election could be seen as nakedly political.

A longer extension of the student loan pause could satisfy President Biden’s base while avoiding the appearance of being a purely political move.

5. Means-testing student loan forgiveness could take time

The White House has repeatedly emphasized that Biden is considering using executive action to implement wide-scale student loan forgiveness, but that no decisions have yet been made. Most recently, Biden said he would make a decision by the end of August.

Reports from earlier this year suggested that top administration officials were considering eligibility restrictions for loan forgiveness based on a borrower’s income. Advocates of this approach say this would target the benefits of student loan forgiveness towards those who need it most. But critics say that means-testing the relief would be a bureaucratic mess, given that the Education Department does not have the tools to make automatic determinations.

If the process requires borrowers to affirmatively apply, the review process could drag out for months or longer, and the most vulnerable borrowers could ultimately fall through the cracks.

But Biden has been consistent that he has concerns about the benefits of student loan forgiveness going towards higher-income earners. If he institutes loan forgiveness with some sort of income eligibility cap, and he wants to ensure that the initiative is implemented before payments resume, a year-long extension of the payment pause may make sense, given that it would likely take time for most borrowers to see the benefits.