The Biden administration plans to extend a moratorium that has allowed millions of Americans to postpone payments during the coronavirus pandemic through Aug. 31, extending a moratorium that has allowed millions of Americans to postpone payments during the coronavirus pandemic, according to an administration official familiar with the White House’s decision-making, reported AP.
After being halted since the beginning of the pandemic, student loan payments were set to resume on May 1. However, in response to Democratic lawmakers’ requests, the White House intends to offer borrowers more time to prepare for payments.
According to the most recent Education Department data, the measure applies to more than 43 million Americans who owe a total of $1.6 trillion in federally owned student debt. More than 7 million borrowers have defaulted on student loans, which means they are at least 270 days behind on payments.
Borrowers will not be required to make payments until after August 31, with interest rates projected to remain at 0% during that time.
Bloomberg first the news of the extension on Tuesday.
Senator Patty Murray said more time is needed to help Americans plan for repayment and to reassess the government’s current student debt repayment structure.
“It is ruining lives and holding people back,” she said in a statement last month. “Borrowers are struggling with rising costs, struggling to get their feet back under them after public health and economic crises, and struggling with a broken student loan system — and all this is felt especially hard by borrowers of color.”
Murray urged the Biden administration to remove all borrowers from default in order to provide a “fresh start” in the aftermath of the pandemic.
The decision is being made amid growing fear that if payments resumed in May, a huge number of Americans would immediately fall behind.
The St. Louis Federal Reserve Bank warned in March that resuming loan payments could place a significant strain on borrowers who experienced financial difficulties during the outbreak. It stated that the impact would be disproportionately felt by Black families, who are more likely to rely on student loans to pay for college.
“Serious delinquency rates for student debt could snap back from historic lows to their previous highs in which 10% or more of the debt was past due,” the bank said.
In March 2020, the Trump administration provided Americans the choice to suspend loan payments, and Congress quickly made it automatic. The Trump administration prolonged the halt twice, and Biden extended it twice more.
It is unclear whether Biden will pursue widespread loan forgiveness in order to lower the nation’s student debt. Some Democrats in Congress have urged Biden to use executive action to cancel $50,000 in student loan debt for all borrowers, claiming that it will stimulate the economy and benefit Black Americans, who have greater amounts of student debt on average.
Last year, Biden requested that the Education and Justice departments investigate the legality of mass debt cancellation, but no judgement has been made. Biden previously stated that he favours cancelling up to $10,000 in fines, but that this should be done by congressional legislation.