Student Loan Forgiveness Update – April 21, 2022

If you were worried about having to resume your student loan payments starting at the end of April, then you’re in luck. In this update, we’ll talk about the White House’s recent extension of the student loan freeze as well as President Biden hinting once again at the possibility of student loan forgiveness.

40,000 Borrowers Received Immediate Forgiveness

The Department of Education announced on Tuesday that they have taken actions to fix “long standing failures in the student loan programs”. In addition to the borrowers immediately helped, they said that an additional 3.6 million borrowers would be moved closer to forgiveness. Check out all the details here.

The Student Loan Payment Pause Has Been Extended

On April 6, 2022, the U.S. Department of Education announced that the payment moratorium on federal student loans would once again be extended, this time through August 31, 2022. Included will include:

  • The suspension of all eligible loan payments
  • No interest accumulation on current loans
  • No actions to be taken on collections for defaulted loans

This is the sixth time the payment pause has been extended since the COVID-19 pandemic began over two years ago. Originally scheduled to resume on May 1st, many Democrats and other politicians criticized the president and sent formal letters to the White House demanding that it be extended. 

Officially in a statement released by President Biden, he said this most recent extension was because “we are still recovering from the pandemic and the unprecedented economic disruption it caused”. 

The latest payment pause extension comes as a sigh of relief for more than 43 million Americans. There is currently more than $1.6 trillion in outstanding federal student debt.

Will the Pause Be Extended Again?

At this point, many people are becoming skeptical if student loan payments will actually resume in September or if they will continue to be deferred indefinitely. This is for a variety of reasons.

The first is that the COVID-19 pandemic is not officially over. Though there has been a lot of optimism about reaching the “endemic” phase of the virus, news about spikes in cases involving the Omicron subvariant BA.2 is slowly making headlines.

Next is record-breaking inflation. Inflation recently topped 8.5 percent and is officially at its highest level in 40 years. This means the price of literally everything consumers use daily has gone up, and that will make an impact on their household budgets. An easy way for the government to provide relief is to continue delaying student loan payments so that families can cover these unexpected price increases.

Finally, there may be also an underlying political agenda. Midterm elections are only a few months away and the last thing Democrats would want to do is get backlash for reactivating student loans. “I can’t see them restarting repayment two months before an election,” says higher education expert Mark Kantrowitz. 

What About Widespread Student Loan Forgiveness?

Ever since his presidential campaign, Biden has positioned himself as an advocate for student loan forgiveness. In a post to Twitter back on March 22, 2020, Biden wrote that we should forgive a minimum of $10,000 worth of student loan debt per borrower. 

However, since taking office, that promise has never come true. In fact, this topic has been mostly silent until it was brought up again last week during a recent White House briefing.

While questioning White House Press Secretary Jen Psaki, she mentioned that Biden “has not ruled out” student debt cancellation. She also added, “And I would note that, again, he would encourage Congress to send him a bill canceling $10,000 in student debt, something that he talked about looking forward to signing on the campaign trail.”

This reference to Congress is another jab at the political stalemate that’s held up the topic ever since Biden took the presidency. Biden wants Congress to put together a proposal and pass it before he gives his endorsement. Meanwhile, Democrats argue that Biden alone has the legal authority to forgive student loans without the support of Congress, and so no such bill has ever been created.

Unfortunately, Biden does not believe he has this legal power politicians claim. Therefore, no progress has been made on student loan forgiveness while both sides wait for the other one to act first.

Should I Wait to Pay Back My Student Loans?

Between multiple payment freeze extensions and talk about student loan forgiveness from the White House, this has many borrowers wondering if they should make an effort to pay back their student loans.

Generally speaking, yes, borrowers should continue their payments for several reasons.

1. They’ll Pay Down the Principal Faster

Recall that a normal student loan payment gets divided between the principal part of the loan and the interest that’s due. However, with loans being frozen, there’s currently no interest accumulating. That means every payment you make now would go 100 percent towards the principal which would accelerate your payoff.

2. Adhering to Budget

By telling people they don’t have to make a payment, they will see this money as being an available part of their budget. But psychologists have long understood that this can lead to trouble because it will be more likely to slip through a person’s fingers without them realizing it. Therefore, if you continue to make payments (or, at a minimum, set the equivalent of your payment aside in a separate bank account), you’ll force yourself into adjusting your spending habits to accommodate this limitation.

3. Forgiveness Won’t Cover Everything

Even if the president and Congress did somehow reach an agreement and forgive $10,000 per borrower, it’s unlikely that your debt would be wiped out. The average federal student loan balance per person is approximately $30,000, so most would still have leftover debt that needs to be paid down.

4. These Changes Do Not Impact Private Student Loans

It’s important to remember that all of this talk about payment freezes and student loan forgiveness only pertains to federal borrowers. There are still 2.4 million people with private student loans who are unaffected.

Unfortunately, because private student loans are individual contracts between a borrower and the financial institution, the federal government cannot intervene. That means that these people must continue to make their payments or face financial penalties such as additional interest, fees, and even damage to their credit scores.

If you’ve got a private student loan and are struggling, Yrefy could be an option for you to reduce your interest rate and payments. Call Yrefy today for more information (888) 346-3394!