Democrat leaders urge Biden to extend student loan repayment freeze through March 2022

Democrat leaders urge Biden to increase student loan compensation freeze by March 2022

BY Sydney LakeJune 29, 2021, 03:00 am

Democratic lawmakers on June 23 despatched a letter to President Joe Biden urging him to increase the freeze on student loan repayments by March 31, 2022—six months later than initially deliberate. During the pandemic, 44.7 million federal student loan debtors have had a reprieve on making funds, an emergency plan that’s set to finish on Sept. 30, 2021.

Congressional management, together with Majority Leader Chuck Schumer, a Democrat from New York, and Sen. Elizabeth Warren, a Democrat from Massachusetts, have lengthy been vocal about student debt cancellation. They wrote to Biden asking him to—earlier than the Sept. 30 deadline— prolong the pause to March 31, 2022, or “until the economy reaches pre-pandemic employment levels, whichever is longer.” As of 2020, whole student loan debt totaled a report $1.57 trillion.

“At this point in time, an extension in suspending student loan payments seems to be about a 50-50 proposition,” says Robert Kelchen, an affiliate professor and chair of the Department of Education Leadership, Management, and Policy at Seton Hall University. “But with every day that passes without a clear statement that payments will resume, I see the odds of another extension going up.”

The freeze first started in March 2020 when the U.S. Department of Education, below CARES Act provisions, issued a short lived suspension of loan funds and a 0% rate of interest. The suspension has since been prolonged 4 occasions.

“Even as the economic recovery picks up steam, it is not reaching all Americans equally,” the letter states. The deliberate fee resumption within the fall may trigger a “significant drag on our economic recovery,” it provides.

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Mark Kantrowitz, creator of How to Appeal for More College Financial Aid, additionally sees an extension as a risk.

“The payment pause and interest waiver might be extended if the unemployment rates for college graduates have not yet normalized as of Sept. 30, 2021,” Kantrowitz says. “The most likely scenario is an extension through the end of the year.”

In May 2020, the unemployment price for bachelor’s diploma holders hit 7.2%, and by this May dropped again to 2.9%, nearing a pre-pandemic degree. The unemployment price for bachelor’s diploma holders in June 2019 was 2.2%, in keeping with the Bureau of Labor Statistics.

The most up-to-date name for an extension comes on the tail of criticism of President Biden for leaving student loan cancellation out of his newest price range proposal. On the marketing campaign path, Biden stated he supported paying off $10,000 of debt per borrower. While widespread cancellation could not but be a actuality, some student loan consultants imagine it may nonetheless be within the playing cards.

“It doesn’t mean that all hope is lost, and that student loan forgiveness for those who are anticipating it won’t reappear as an item later in some way, shape, or form,” Bruce McClary, senior vice chairman of communications for the National Foundation for Credit Counseling (NFCC), beforehand advised Fortune. “Certainly the issue will be revisited.”

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Before the pandemic, month-to-month student loan funds averaged between $200 and $299, in keeping with the Federal Reserve. Student loan consultants have been torn over what debtors ought to do with these funds that debtors are at the moment saving every month.

How to navigate the fee reprieve

Some say it’s greatest to proceed funds for those who’re in a position to take action, whereas others encourage debtors to redirect these funds to a financial savings account or to repay different debt, like credit card payments or mortgages. Others advise debtors to look into income-driven compensation (IDR) plans, a substitute for an ordinary plan calculates month-to-month funds based mostly in your most up-to-date tax filings. 

IDR plans might be helpful to debtors who noticed a drop of their 2020 revenue as a result of pandemic, student loan consultants say. But congressional management cautions towards the IDR plans, calling the enrollment course of “complex and lengthy.”

Congressional management can also be pushing for the extension to offer debtors extra time to arrange for a resumption of funds, citing that an elevated variety of debtors may turn into delinquent or default on their loans in the event that they’re unprepared.

“A wave of student loan defaults would cause long-term damage to borrowers’ credit and financial stability and could put a sudden and unnecessary drag on the recovering economy,” congressional leaders wrote within the letter. 

Plus, it’s going to be troublesome to get the phrase out about fee resumption to debtors, Kelchen provides.

“If payments don’t resume for another six months, the pressure will be increased to keep suspending payments indefinitely as a backdoor way to student debt forgiveness,” he says.

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