As it fights lawsuits that threaten to halt its comprehensive student debt forgiveness program, the White House has extended the federal student loan payment freeze.
According to the Department of Education, the extension will not be extended beyond June 30, 2023. However, if the Supreme Court decides on the fate of Biden’s plan to cancel student loans up to $20,000 per borrower prior to June 30, then forbearance could be ended sooner.
This is the eighth time that the government has extended interest-free forbearance. However, the Biden administration insisted that Dec. 31 would be the last expiration date.
“Callous attempts to block student loan relief in the courts has caused tremendous financial uncertainty for millions borrowers who can’t set their family budgets, or even plan for holidays without a clear understanding of their student debt obligations,” Secretary of Education Miguel Cardona stated in a statement.
The Education Department stated that payments will resume within 60 days of the end of the pause. Unless the president authorizes forbearance to continue, repayments will resume 60 days after the department has been allowed to implement the program, or after the litigation is settled, or 60 calendar days after June 30, 2023, whichever comes first.
This extension is a win by activists and borrowers, who called for the Biden administration’s forbearance to be extended after many legal challenges halted the student debt cancellation program.
Mike Pierce, executive director at the Student Borrower Protection Center said that President Biden extended the pause on student loans payments now and reiterated his intention to cancel student debt over the coming months.
Federal student loan borrowers can skip their payments during forbearance. This was first initiated by Donald Trump in March 2020, as the COVID-19 pandemic hit. Their interest rates have been set at 0% and collection activities on defaulted loans have been stopped.
About 40 million borrowers were supposed to pay their bills in January, but they will now get extra time. However, the payment holiday should be ended after nearly three years of no student loan bills and uncertain future cancellations.
When will payments resume?
We don’t know when payments will resume. Tuesday’s announcement by the Education Department leaves the expiration date for forbearance up in the air. This will depend on whether or not the Supreme Court decides to weigh in on the legal challenges surrounding Biden’s student loan relief plan.
If the Supreme Court decides on the case before June 30, 2023
Borrowers with outstanding balances must start repaying loans within 60 days if the Supreme Court decides on Biden’s plan prior to June 30.
If the Supreme Court does not rule by June 30, 2023
Forbearance will be lifted if the Supreme Court does not rule on Biden’s debt cancellation program by June 30. The Supreme Court will require borrowers to begin repaying their loans within 60 days of June 30.
Do you need to make payments during extension?
Your remaining balance and your ability to repay will determine whether you start repaying while in forbearance.
Don’t pay student loans if your cancellation amount under the stalled Biden Plan would wipe them out. If you can, save your student loan money. You should keep this money in a separate account to ensure it doesn’t get mixed up with your regular expenses. It is also available to you for a lump-sum payment in the event of cancellation.
Borrowers who are enrolled in forgiveness programs, such as Public Service Loan Forgiveness, will see their monthly payment count rise regardless of whether or not they make a payment. These borrowers shouldn’t make payments.
If cancellation is requested, students who have student loans should pay during the extension. You will be closer to the finish line quicker and cheaper by using this time to pay.
It all comes down to simple math. Dave Christensen from Wisconsin, who repaid about $30,000 in student loan debts during the pandemic, explained that it is just basic math. He says, “They don’t charge you interest so make sure to take advantage of that. Your balance will drop a lot faster that way.”
You’ll still need to repay loans, regardless of whether Biden’s comprehensive debt cancellation plan is successful. Your loan principal will be paid out of the money you have paid toward your loans up to forbearance in 2023. Even partial payments are helpful.
Get started planning for your repayments
No matter how you manage the remaining forbearance, it is important to start planning for repayment. If the Supreme Court decides on Biden’s debt cancellation plan, the pause could be over by June 30.
Kristen Ahlenius (director of education, The Money Line), a financial wellness company that works in the workplace, advises, “Practice making these payment now.” Take the equivalent amount of your student loan payments and use this money to pay off other debts or increase your emergency fund. In the interim .”
To confirm your monthly payment, call your loan provider. The amount you pay could be reduced if your loan is cancelled. However, it is best to prepare for the worst. Ask about an income-driven repayment program if you are unable to pay the entire amount. These plans limit your monthly payments to a percentage of your disposable income. This reduces the amount you pay and prolongs the loan’s life. Your payments may be $0.