Yesterday, President Biden announced that he will be extending the ongoing student loan payment pause on federally-administered loans well into 2023. The pause, which has been in effect since March 2020 and was set to end next month, has also set interest rates to zero on government-held federal student loans, and suspended all collections efforts against borrowers in default.
Here’s what borrowers need to know about the latest extension.
Student Loan Pause is Extended Again Due to Legal Battle Over Biden’s One-Time Student Loan Forgiveness Plan
Biden decided to extend the pause again because federal courts have blocked his one-time student debt cancellation initiative, which would cancel $10,000 or more in federal student loan debt for tens of millions of borrowers.
The administration is appealing to the U.S. Supreme Court, which may have the final say on the legality of the program. Today, a coalition of progressive organizations, labor unions, and borrower advocacy groups filed an amicus brief with the nation’s highest court, urging the court to rule in the administration’s favor and allow the student loan forgiveness program to proceed.
“As this country works its way out of the COVID-19 pandemic, working and middle-class Americans are counting on the President to deliver on his promise of student debt relief,” said Persis Yu, Deputy Executive Director and Managing Counsel at the Student Borrower Protection Center, in a statement. “The collective Amici are on the front lines helping borrowers survive financial havoc wrought by the double whammy of the broken student loan system and COVID-19 pandemic. Restarting repayment without cancellation will expose millions of borrowers to default and deprive too many of their wages, social security benefits, and Earned Income Tax Credit. These borrowers deserve better than to be treated like political pawns. We have faith that the Supreme Court will see through the political chicanery and allow this critical program to deliver the relief that 40 million working and middle-class borrowers desperately need.”
Exact Length of Student Loan Pause Extension is Not Set in Stone
Unlike past extensions of the student loan pause, Biden’s latest extension does not necessarily have a firm end-date. According to a statement by the Education Department, “Payments will resume 60 days after the Department is permitted to implement the program or the litigation is resolved.” That means that theoretically, payments could restart within a few months if the Supreme Court issues a final ruling on the matter soon.
But a final ruling may not come until sometime this summer, and the Education Department indicates that the extension of the payment pause may continue until June 30, 2023. Even then, however, borrowers would not have to actually start making payments until 60 days after June 30. This effectively means that borrowers may have until the end of August 2023.
Of course, as borrowers have seen already, these situations can change rapidly. It is possible that the payment pause could end sooner, or it could potentially be extended yet again, even beyond the summer of 2023.
Benefits of Student Loan Pause Will Continue
Despite some uncertainty about how much longer the student loan pause will actually last, the benefits of the payment pause will continue beyond December 31. That means interest will continue to be set to zero for federally-administered student loans, and collections efforts against defaulted borrowers will remain suspended.
In addition, the months of suspended payments will still qualify towards student loan forgiveness under Income-Driven Repayment (IDR) plans and the Public Service Loan Forgiveness (PSLF) program.
Extension of Student Loan Pause May Help PSLF Borrowers
Because the payment pause will continue to count towards PSLF (provided a borrower is working in qualifying employment and complies with other PSLF program criteria), the extension beyond December 31 may be helpful for many borrowers seeking student loan forgiveness under that program.
The Education Department indicated last week that many PSLF applications submitted in the weeks prior to the October 31 Limited PSLF Waiver deadline are still being processed. In addition, the new IDR Account Adjustment initiative — a separate but related program — is just being rolled out and isn’t set to be fully implemented until July 2023. The IDR Account Adjustment effectively extends many of the benefits of the Limited PSLF Waiver, giving many borrowers a second shot at relief under the temporary flexibilities.
Student Loan Pause Extension Coincides With Loan Forgiveness Regulatory Reforms
The extended student loan pause into the summer of 2023 will coincide with a broad regulatory overhaul of key federal student loan forgiveness programs. In addition to the temporary IDR Account Adjustment initiative, updated regulations will streamline and improve other federal student loan forgiveness and relief programs on a more permanent basis. This will include Public Service Loan Forgiveness (PSLF), Borrower Defense to Repayment, and the Total and Permanent Disability (TPD) Discharge program.
The Education Department will also be releasing a new, potentially more affordable income-driven repayment (IDR) plan, and will be eliminating several events that trigger student loan interest capitalization.
These initiatives are expected to be in place by July 1, 2023.