The Department of Education granted millions of Americans a short reprieve Friday when it extended a further month on federal student loan payments. Ultimately, borrowers may not be able to avoid payments until much later in 2021, experts say.
The facility for student borrowers should expire at the end of the year. The Education Department’s announcement officially extends the relief until January 31st, helping to avoid a chaotic situation where borrowers may have to make a payment in January before being put on deferral again.
Several experts told Money in interviews surrounding the elections that it was very likely that a new Biden administration would go ahead Policy started under the CARES law by keeping interest rates at 0% and allowing federal borrowers to avoid payments for at least a few months through 2021, if not longer.
“It is widely accepted that it needs to be rolled out across the board as we are still in the middle of why we are doing it in the first place,” Michele Streeter, senior policy analyst at the Institute for College Access and Success, said at the time.
Consumer advocates have been warning for months that flipping a switch to resume payments for all borrowers in January would leave many behind. A survey by Pew Charitable Trusts earlier this year found that nearly six in ten borrowers would find it somewhat or very difficult to repay their student loans.
Here are three things that borrowers need to know.
Extended relief occurs automatically
If you have qualifying student loans, you will still have 0% interest through January. The additional month of Administrative Forbearance will continue to count towards the number of payments required under an income-based repayment plan, loan restructuring arrangement, or public service lending program. No payments are required, but if you can pay between now and the end of January, all of the money will be returned to your main balance, helping you settle your debts faster.
The renewal is automatic; You don’t have to do anything to benefit from it.
Education Minister Betsy DeVos said in a statement that the extension will give Congress additional time “to do its job and determine what measures it believes are necessary and appropriate”.
Mixed news could continue
In the past few weeks, the companies that manage loan repayment for the government had already started notifying borrowers of the resumption of payments in January. Now these loan service providers need to reverse course and tell borrowers that the current relief measures will continue.
Additionally, unless Congress acts to pass a stimulus bill by then, you’re likely to see similar mixed messages next month. A new Biden government will not be able to extend the grace period until after the inauguration on January 20th. But like this time, the loan service providers must inform borrowers that their payments will resume in February because they cannot hold back the assumption that the Biden administration will act.
Payments may not resume until next fall
The relief efforts could be extended beyond the end of January by law if Congress approves a new pandemic relief package. If not, Biden and his education secretary can resume discharge by ordinance, as President Trump did in August.
Biden didn’t say whether he would extend the payment hiatus for federal borrowers. However, he has said he supports some of the student loan facilitation measures in the Heroes Act, which include granting federal borrowers a grace period through September 2021.
This is also the date proposed by more than 75 organizations in a letter to the Ministry of Education earlier this year. And in November, the heads of three prominent higher education organizations recommended that student loan payments be suspended until September 30, 2021, or until the unemployment rate fell below 8% for three consecutive months.
Robert Kelchen, associate professor of higher education at Seton Hall University in New Jersey, told Money in November that he expected a Biden administration to extend the interest-free payment hiatus through September, and repeated that prediction in one tweet according to the announcement by the Ministry of Education.
If the September schedule is adhered to, it means more than 40 million borrowers will have 0% interest for 18 months. For those who can still afford to pay their monthly payments, this could translate into significant savings for some borrowers. Graduates with debts of about $ 50,000 would typically raise about $ 250 in interest each month.
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