The suspension of student loan payment is extended until August 31

In a widely anticipated move, President Biden on Wednesday extended the suspension of federal student loan payments until August 31, marking the sixth extension in the two years since the moratorium began in the wake of the coronavirus pandemic.

Payments were scheduled to resume in May, but about 41 million people will now have a few more months without interest on their loans. The administration also said it would help 7.5 million people avoid defaulting on their federal student loans by relieving them of salary seizures, tax refunds and social security benefits.

“We are still recovering from the pandemic and the unprecedented financial turmoil it has caused,” Biden said in a statement Wednesday. He added that “the extra time will help borrowers achieve greater financial security and will support the Ministry of Education’s efforts to continue to improve student loan programs.”

Congressional Democrats had urged management to extend the pause, arguing that the resumption of payments would destabilize many borrowers who are unwilling to shoulder another bill amid rising food and gas costs. Republicans opposed the move as an unnecessary gift as Biden says the economy is on a solid footing.

“If loan payments continued normally in May, an analysis of recent data by the Federal Reserve shows that millions of student borrowers will face significant financial hardship and delays and bankruptcies could threaten the financial stability of Americans,” he said. Biden.

Do you have federal student loans? Tell us what you did after the payment freeze.

Economists say the resumption of student loan payments will squeeze the personal finances of millions of adults. About $ 7.5 billion in student loan payments have been withdrawn each month for the past two years, according to a new analysis from the Federal Reserve Bank of New York. The huge tolerance program explains why, according to the JPMorgan Chase Institute, most families had more bank accounts in late 2021 than when the pandemic began.

More than 4 in 5 of those borrowed directly from the government made little or no progress in repaying their debt during the freeze, according to New York Fed figures, and only 5 percent paid more than $ 5,000.

Compared to rent or mortgage payments, “student loan tolerance is a lower monthly debt payment, but it is more important for lower-income families,” said Fiona Greig, co-chair of the institute.

Renewed student loan payments would force many Americans to cut back on spending or savings just like they used to. savings rateor U.S. share of income after taxes on savings or investment sank this year at the lowest rate in almost a decade.

“Many borrowers will have to cut back on consumption as soon as the student loan repayment moratorium expires, which will substantially slow down economic activity and therefore affect everyone,” said Dora Gitcheva, an economist at the University of Vorobrospo.

Gitcheva said she also expects credit card debt to rise as people turn to credit cards to make ends meet when paying off student loans, according to forthcoming analysis in the Journal of Money, Credit and Banking by Gicheva and economist Berrak Bahadir of the International University of Florida.

But for now, borrowers will have little room to breathe.

The suspension has benefited 41 million Americans. Among them are people who, before the pandemic, had not paid their federal loans for almost a year – defaults that usually put them at risk of the federal government withholding part of their income. Instead, Congress has given these borrowers a way to get their loans back on track.

A provision in the Coronavirus Aid, Relief and Economic Security, or Cares Act, ensured that each month of deferral payments would be included in student loan repayment, a federal program that removes a default on a person’s credit report after nine consecutive payments. Based on the duration of the moratorium, the borrowers have met the terms of the program and are eligible for default.

But the Ministry of Education usually requires borrowers who have defaulted to apply, a step that consumer groups worry will lead people to flee. Advocates and lawmakers are also concerned that individuals who have repaid their loans in the past and redefined their loans will be excluded because the program is supposed to be a one-off offer.

Education Secretary Miguel Cardona has agreed to waive the requirements and restrictions of the program, which ensures that people will have cleared their negative credit histories without losing the ability to repay their loans. The decision covers all loans affected by default, including federal debt defaulted by private companies known as commercial state federal family education loans. The ministry said additional details would be announced in the coming weeks.

“The Department of Education is committed to ensuring that student loan borrowers have a smooth transition to repayment,” Cardona said in a statement Wednesday. “This additional expansion will allow borrowers to have greater financial security as the economy continues to improve and as the nation continues to recover from the COVID-19 pandemic.”

The representative of Virginia Fox (NC), the leading Republican in the Education and Labor Committee of the House, has criticized the execution of what the administration called the “new principle of operation”. Foxx said the Department of Education has not discussed its plans with Congress or student loan officials.

“The Biden government continues to rule with executive power without any assessment of the consequences of its actions,” Foxx said in a statement Wednesday. “This vague and frivolous growth will lead to massive confusion among borrowers that could potentially lead to new bankruptcies. “This is what happens when reckless ambition replaces common sense.”

The White House had indicated that another extension was in the works. In an appearance on the “Pod Save America” ​​podcast in early March, White House Chief of Staff Ron Klein he said the president will decide whether to use his executive power to cancel the students’ debt “before the break ends or extend the break”. Days later, the Ministry of Education told student loan officials managing its portfolio to stop sending notices to borrowers about the May resumption.

Encouraged by the moves, the heads of the Senate and House’s education committees – Senator Patty Murray (D-Wash.) And spokesman Robert C. “Bobby” Scott (D-Va.) – pressed the administration to act. Murray said another extension would give the Department of Education more time to fix the repayment system with better options for people to manage their debt.

Senator Patty Murray urges Biden government to extend student loan deferral until 2023

Republicans were initially involved in the pay cut, but the policy was cold as the economy recovered and the cost exceeded $ 100 billion.

Congressional Democrats, meanwhile, praised the White House decision. some as well again calls on Biden to eliminate some of the $ 1.6 trillion federal loans held by millions of Americans.

Senate Majority Leader Charles E. Sumer (DN.Y.) issued a joint release with seven other lawmakers, including Sen. Elizabeth Warren (D-Mass.) And Ayanna Pressley (D-Mass), urging Bain to resign. go further.

“While the extension is welcome, an imminent resumption of student loan payments in September underscores the importance of swift action to effectively write off student debt,” the lawmakers wrote. “We continue to beg the President to use his clear legal authority to cancel the student debt, which will help reduce the racial wealth gap, boost our economic recovery and show that this government is fighting for the people.”

The new extension means that borrowers with student loans from the Ministry of Education will see payments automatically suspended without fines or accrued interest for the duration of the moratorium. Debt collection will continue to stop and any borrower with outstanding federal loans whose wages are written off will receive a refund.

The Trump administration in March 2020 allowed borrowers to defer payments for at least 60 days as the pandemic hit the economy. Congress later codified the postponement of the Cares Act and made it automatic. The Trump administration has twice extended the moratorium, and Biden’s White House has now done so four times.

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