Resumption of student loan payments in 2 months – first time under Biden
- Student loan payments resume in 2 months after what will be a pandemic break of almost 2 years.
- While some borrowers are better off because of targeted student debt forgiveness, most are not.
- Proponents fear that most borrowers may not be financially secure enough to repay.
The pandemic may not be over, but two months from now the pause in student loan payments will be. About 580,000 borrowers will be released from this burden forever, thanks to President Joe Biden’s targeted loan forgiveness.
Federal Student Aid Director Richard Cordray said in remarks this week that while the nearly 2-year break was “a welcome relief, no doubt,” January 31, 2022 is the last day that borrowers will benefit from this relief.
âWe recognize that the stakes are extremely high in the face of this challenge,â Cordray added.
Transitioning 43 million borrowers into repayment – along with the 16 million borrowers who will make payments to new lenders – is an unprecedented task with many potential hurdles. A spokesperson for the Education Department previously told Insider that the department “will continue to work to ensure that all of our borrowers can benefit from a successful return to repayment.”
Student loan payments have been on hiatus – and charging no interest – since March 2020.
Since President Joe Biden took office in January 2021, he has twice extended the moratorium on student loans. But his education ministry made it clear in August that there would be no extension after February, which means borrowers will face student debt next year whether they’re ready or not. .
Biden’s administration stands firm that 43 million Americans will experience a smooth transition to paying off student debt. But some borrowers, experts and legislators are not so sure.
A fraction of federal student loan borrowers are better off
Biden not only extended the student loan payment hiatus since taking office, but he also forgave the student debt of around 600,000 borrowers.
Its education department first took action in March for borrowers defrauded by for-profit schools, and to date it has written off more than $ 2.6 billion in student debt for borrowers who visited fraudulent for-profit institutions like Corinthian Colleges and ITT technical institutes.
Disabled borrowers have also received more than $ 7 billion in assistance. Under President Barack Obama, borrowers with total and permanent disabilities had to submit heavy documents to qualify for loan cancellation, which resulted in many borrowers who would be eligible not to qualify for relief. Biden’s Education Secretary Miguel Cardona waived the requirement in March and forgave the student debt of nearly 400,000 of those borrowers.
And more recently, the ministry announced reforms to the Public Service Loan Forgiveness Program (PSLF), which cancels the student debt of public servants, such as teachers, after ten years of qualifying payments. Prior to the reforms, the program had a 98% refusal rate, and the department said the changes should bring 550,000 borrowers one step closer to relief.
As these cancellation measures fulfill his campaign promise to reform loan cancellation programs, which are statutory measures, Biden also campaigned to approve the cancellation of $ 10,000 in student loans for each. borrower – something he has not yet done.
Majority of borrowers could face a “financial catastrophe”
The pandemic break has given some borrowers a debt-free future, but the vast majority of those with federal loans cannot say the same. A recent survey from the Student Debt Crisis Center found that 89% of borrowers with full-time jobs don’t feel financially secure enough to resume their payments next year, given much of their income will go to fund their student debt.
“When we think of this huge chunk of their income that goes into student loans at a time when the country is talking about rising inflation and rising costs, it’s a recipe for financial disaster,” said the Executive Director of the Student Debt Crisis Center, Cody Hounanian, at Insider.
Borrowers feel the same. Reid Clark, a single dad with $ 550,000 in student loans for his children, previously told Insider he was not confident about his ability to pay off his debt.
âI’m very concerned about my ability to repay loans during my remaining working years, and it’s going to scare me even more in a few years when I retire and have very limited income,â Clark said. “This is the part that gives me the most anxiety.”
The solution that lawmakers like Massachusetts Elizabeth Warren see to combat these fears is broad student debt forgiveness.
âThe cancellation of $ 50,000 in student debt would solve this problem by fully relieving the burden of student debt for the vast majority of borrowers,â she previously said.
Do you have a story to share on student debt? Contact Ayelet Sheffey at [email protected]