Student loan payment break could be extended – why you should prepare now
As of March 27, 2020, federal student loan interest rates have been set at 0% and payments have been suspended. The policy will expire on October 1, 2021.
Economists have warned that ending the hiatus could lead to negative outcomes such as increased missed payments and delinquency (more than one in four was already in default or in default before the pandemic). And lawmakers such as Senators Elizabeth Warren of Massachusetts and Patty Murray of Washington have urged President Biden to extend the moratorium on student loans until 2022.
“The hiatus on emergency loan payments has been a lifeline for families in Washington State and across the country, helping so many struggling borrowers keep a roof over their heads and their lives. food on the table, ”said Murray, Senate Speaker on Health, Education. , Work and Pensions Committee in a statement sent to CNBC Make It. “It’s clear that borrowers need more time and information to navigate the resumption of repayments, so I’m pushing to extend the payment hiatus and make sure borrowers get the support they need. ”
More than 120 organizations, including the American Civil Liberties Union, the National Consumer Law Center, and the Consumer Federation of America, have also called on the president to extend the hiatus until “the administration has kept the promises you made. made to student loan borrowers to fix the broken student loan system and cancel federal student debt. ”
Education Secretary Miguel Cardona said an extension of the break was on the table, giving hope to those who believe an extension is needed.
Higher education expert Mark Kantrowitz says the most likely scenario is for the break to be extended until the end of the year and says workers could be stable enough to make payments by then, citing BLS data that shows the seasonally adjusted unemployment rate of workers with a bachelor’s degree or above was only 3.5% in June 2021.
Low unemployment could mean Biden may not be motivated to extend the break, he argues.
“An extension of the payment break and the interest waiver assumes that the president does not reverse the Covid-19 national emergency declaration,” Kantrowitz says. “If he cancels it, the power to grant a suspension of payment and an interest relief will end.”
Kantrowitz says that “loan officers should start advising borrowers when their payments are to be resumed in August, in accordance with the rules established by the CARES Act” and that borrowers “should ensure that the loan officer has its current coordinates “.
He also says borrowers whose student loan payments are set up with automatic payment may want to confirm that their information is up to date.
“If an extension is granted, it will help people do what they’ve done or even more – store money in that emergency fund or their retirement savings,” said Shelly-Ann Eweka, senior manager of the financial planning strategy at TIAA. “But what I’m trying to tell people is plan what you know today and make adjustments today so that you can prepare yourself.”
She predicts that the hiatus on federal student loans will end soon.
“I expect that in the fall, student loan borrowers will have to start repaying their loans which have been, for the most part, on hold due to the pandemic,” Eweka said. “I would plan what you know now. And whatever sacrifices you make to make that payment every month, I would say you start now.”
In the event that the pause on student loan payments is extended, Eweka says borrowers can use those funds for another financial purpose.
“Inevitably some people are not going to prepare … which I can totally understand. People are overwhelmed. It’s overwhelming because this payment is coming in and how you are going to pay it is stressful and you might be thinking: “I’m just not going to stress myself about it,” she said. “But don’t wait to prepare as it can help you deal with this. [stress] and manage what lies ahead. ”