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The CARES Act, which was enacted on March 27, 2020, included a payment pause and interest waiver for federal student loans held by the U.S. Department of Education.
The payment pause and interest waiver was originally set to expire on September 30, 2020, but has been extended a total of five times: twice during the Trump Administration and three times during the Biden Administration.
When the current extension expires, on May 1, 2022, student loan payments will have been suspended for a total of 26 months, with borrowers seeing more than $125 billion in waived interest.
Will the payment pause and interest waiver be extended again, for a sixth time?
Can The Student Loan Payment Pause Be Extended Further?
The payment pause and interest waiver effectively puts eligible federal student loans into hibernation, ensuring that borrowers are no worse off than they were prior to the pandemic.
The legal authority for the payment pause and interest waiver depends on the HEROES Act of 2003, which allows a limited waiver or modification of federal student aid rules in connection with a national emergency (20 USC 1098bb(a)(2)(A)).
The Covid-19 pandemic was declared a national emergency by President Trump under the Robert T. Stafford Disaster Relief and Emergency Assistance Act on March 13, 2020. So long as this presidential declaration remains in effect, the U.S. Secretary of Education can continue to extend the payment pause and interest waiver.
The authority for the Limited PSLF Waiver, which was announced on October 6, 2021, also depends on the HEROES Act of 2003. The October 31, 2022 deadline for using the Limited PSLF Waiver is an indication that the Biden Administration believes that the presidential national emergency declaration will continue at least through that date.
This suggests that the Biden Administration could choose to extend the payment pause and interest waiver through October 31, 2022.
The big question is whether President Biden will choose to implement a sixth extension of the payment pause and interest waiver, or whether he will allow repayment to restart on May 1, 2022, as currently scheduled.
Borrowers Believe President Biden Will Extend The Payment Pause And Interest Waiver Again
According to a CNBC student loan survey conducted in January 2022, 29% of borrowers believe that repayment will resume on May 1, 2022, 26% believe the President will extend the payment pause again, 28% believe some student loans will be forgiven and 14% believe that all student loans will be forgiven.
More than two-thirds of survey respondents want President Biden to forgive some or all student loans, with 34% supporting forgiveness of all student loans and 35% supporting targeted forgiveness to borrowers based on need. A quarter (27%) do not want President Biden to forgive any student loans. This aligns closely with a survey conducted here last year as well.
There is a sharp divide according to political affiliation, with only 19% of Republicans supporting forgiveness of all student loans, compared with 43% of Independents and 46% of Democrats.
There are also divisions based on demographics:
- More women than men support student loan forgiveness (38% vs. 29%).
- Black and Hispanic survey respondents are more likely to support student loan forgiveness than White and Asian respondents (52% and 42% vs. 29% and 27%).
- Younger respondents are more likely to support student loan forgiveness (45% of Gen Z and 43% of Millennials vs. 32% of Gen X and 23% of Boomers).
- Low-income respondents earning less than $50,000 are more likely to support student loan forgiveness than middle-income respondents earning $50,000 to $99,999 or high-income respondents earning $100,000 or more (42% vs. 33% and 25%).
- Borrowers who owe more student loan debt are more likely to support student loan forgiveness than borrowers who owe less (76% of borrowers who owe $100,000 or more vs. 59% of borrowers who owe less than $10,000).
A Political Calculation
The most recent extension to the payment pause and interest waiver was driven more by politics than by policy.
The previous extension, through January 31, 2022, was identified as the “final extension” because the student loan and employment situation was expected to reach pre-pandemic norms by the end of 2021.
Since then, unemployment rates have normalized. The unemployment rate in January 2022, at 4.0%, is the same as it was in January 2019, before the pandemic. And a recent survey found most borrowers were ready to resume payments.
Deferment, forbearance, delinquency and default rates are also at least as good now as they were before the pandemic for loans that are not eligible for the payment pause and interest waiver.
But, some policymakers were vocal about insisting on a further extension. Fear of the omicron variant of the Covid-19 virus, which has since subsided, also helped justify the additional extension. There will always be a risk of another variant of concern, given that many people around the world have not yet been vaccinated and boosted.
Some Democrats have called for another extension of the payment pause and interest waiver, through 2023.
On the other hand, some Republicans have been critical of the most recent extension. Representative Virginia Foxx (R-NC), who will chair the House Committee on Education and Labor if Republicans take back control of the U.S. House of Representatives, said, “President Biden’s latest extension is a troubling trend toward blanket student loan forgiveness, which would be a massive mistake, with major consequences for borrowers and taxpayers.”
Some Democrats feel that President Biden should continue to extend the payment pause and interest waiver until the Congress can implement broad student loan forgiveness. (The President cannot implement broad student loan forgiveness on his own, through executive action. Only Congress has the power of the purse. If the President were to issue such an executive order, it would face a court challenge and ultimately fail, but put borrowers in an uncertain limbo state for months.)
Broad student loan forgiveness is unlikely to be enacted until the Build Back Better Act is passed in some form, or abandoned, as student loan forgiveness is controversial enough to potentially derail the Build Back Better Act legislation. Even some Democrats are balking at the high cost of broad student loan forgiveness and prefer lower-cost targeted loan forgiveness.
The path forward may depend on a political calculation concerning the impact on the mid-term elections.
Related: Can The President Extend The Student Loan Pause Forever?
What Should Borrowers Do?
Interest rates have started increasing, so borrowers may be eager to refinance federal loans into private student loans, to take advantage of current low interest rates.
But, borrowers should be careful about refinancing federal loans into private student loans, as then they’ll lose the superior benefits of federal loans, including the payment pause and interest waiver, and possible loan forgiveness.
There is no answer yet on whether there will be any broad student loan forgiveness. Broad student loan forgiveness may be limited to federal student loans held by the U.S. Department of Education, just like the payment pause and interest waiver. It will be unfortunate if they refinance their federal loans into a private loans, only to later learn that they could have qualified for student loan forgiveness. Or, there may be more automatic loan forgiveness opportunities based on existing programs.
There’s time to wait and see what happens with broad student loan forgiveness. Interest rates won’t increase by too much through the end of the year. Moreover, the payment pause and interest waiver provides federal loans with a temporary 0% interest rate, better than the lowest interest rates available on a private student loan.
Borrowers can use the money saved from suspended student loan payments to build or bulk up an emergency fund or to pay down higher-interest debt.
If borrowers continue to make payments on their federal loans, the payment goes entirely to principal. But, borrowers who expect to qualify for loan forgiveness, such as Public Service Loan Forgiveness or the forgiveness at the end of an income-driven repayment plan, shouldn’t make extra payments on their loans, as that will just reduce the amount of forgiveness they eventually receive.
Borrowers can also save the money to provide a cushion for the restart of repayment, to ease into it.
Borrowers should create a descriptive budget by tracking their spending for a month, assigning each expense to a broad category like food, entertainment, transportation, housing and medical care. They should also tag each expense as mandatory (need) or discretionary (want). Total up the categories and tags at the end of the month. This will help them understand how they are spending their money and where they might be able to cut back to make room for the student loan payments.
Borrowers who will still be struggling with their student loans should contact their loan servicer to explore options for financial relief. Deferments and forbearance can continue to suspend the repayment obligation. Extended repayment and income-driven repayment can reduce the monthly loan payment, making it more affordable.
Related: What To Do When Your Student Loans Un-Pause