The pause on federal student loan payments is set to expire on August 31, potentially marking the first time loan payments will be due in over two years.
Roughly 40 million Americans have not had student loan payments due since the beginning of the COVID-19 pandemic after President Trump issued an executive order. Interest on those loans has been set at zero percent for the duration of the pause.
The payment pause has saved borrowers $5 billion a month, the Education Department estimates. That amounts to approximately $150 billion from the time the pandemic began through the end of August.
When the White House most recently extended the pause on loan payments in April, it said President Joe Biden would soon decide whether there would be student debt “cancellation” through executive action or if the president would extend the pause.
On Thursday, more than 100 Democratic and Independent lawmakers signed a letter to the president and Education Secretary Miguel Cardona urging the administration to extend the student loan payment pause.
The lawmakers cited “the numerous economic issues facing borrowers across the nation, as well as administrative actions in process by the Department of Education” as reasons for another extension being needed.
Meanwhile, borrowers are waiting for an announcement to find out if they will have to resuming making payments. Biden might be waiting to make an announcement closer to the upcoming midterms in hopes of swaying potential voters, according to a Bloomberg report.
However, if the pause does expire at the end of the month, it will not mean millions of borrowers will have payments automatically due on September 1. Borrowers will receive a billing statement or other notification and at least 21 days’ notice before their next payment is due, according to the Federal Student Aid office.
When the payment pause was first initiated under former President Donald Trump, it was instituted as part of the CARES Act in 2020. Initially, as part of the pause, student loan servicers would be required to send borrowers six notifications before payments resumed. It is unclear whether that still applies.
Experts stress that pausing student loan payments only delays when borrowers will have to pay back their loan, and ultimately they will still have to pay what they owe.
“All this does is delay when you repay the loan,” Scott Buchanan, executive director of the Student Loan Servicing Alliance, told McClatchy News. “You pay the same amount back. In fact, you thought you’d be done paying off your loan in 2027, and now it’ll be 2029.”
Biden has explained he was considering “canceling” $10,000 in student loan debt but ruled out “canceling” $50,000 per borrower, which some Democrats have suggested.
White House Press Secretary Karine Jean-Pierre reaffirmed that assertion in a July 27 news conference, saying that the president would make a policy decision regarding student loans by the end of August.
“But he’ll make a decision. He spoke to that last week, so I’ll let him speak when he’s ready,” Jean-Pierre said.
Yet, there has been no policy announcement with less than a month until the pause expires. On Monday, an unnamed White House official told CBS News that the administration “is continuing to assess options for cancellation and no decision has been made.”
The Biden administration has approved more than $26 billion in targeted student loan “cancellation” for more than 1.3 million borrowers through executive action. That includes approximately $8 billion for those defrauded by schools; nearly $9 billion for borrowers with disabilities; more than $8 billion through the public service loan forgiveness program; and more than $1 billion for those whose schools closed.
Nevertheless, some want more action. Last month, 180 organizations urged Biden to extend the student loan payment pause until every student loan is “canceled” altogether. The Biden administration may hesitate to institute widespread student loan “cancellation” amid record-high inflation.
The “cancellation” of all Americans’ student debt would total $1.6 trillion. It would “increase the inflation rate by between 10 and 50 basis points (0.1 to 0.5 percentage points) in the 12 months after repayment is scheduled to begin,” according to the CFRB report.
Maya MacGuineas, president of the CFRB, says a widespread “cancellation” of student loans, even of $10,000 per borrower, is “not good policy.”
“It is costly, inflationary, poorly targeted, and fails to address the root problems in our higher education financing system,” MacGuineas said. “Forgiving $10,000 per person of debt would cost as much as universal pre-K or a full extension of the expanded ACA subsidies.”