Student Loan Debt and the Status of Extending or Cancelling It
During the COVID-19 pandemic, the U.S. suspended payments and interest on federal student loans, but those protections are set to end on Sept. 30, 2021. Democrats led by Senate Majority Leader Chuck Schumer (D-N.Y.), Sen. Elizabeth Warren (D-Mass.), and Rep. Ayanna Pressley (D-Mass.) are making a renewed push for President Joe Biden to extend the pause on student loan payments through March 2022, as well as permanently cancel up to $50,000 per person of student loan debt.
Starting in March 2020, the Department of Education temporarily suspended federal student loan payments and dropped the interest rate to 0% as part of the CARES Act. That temporary pause has since been extended multiple times.
Student Loan Borrowers
Not all borrowers suspended their payments. About 2.5 million Americans took advantage of the 0% interest rate to pay off their loans over the past 18 months, according to data loan servicers recently provided to lawmakers.
According to Senator Warren, about 30 million Americans are set to resume student loan payments at the end of September. The average borrower pays about $400 in student loan payments. Overall, about 44.7 million borrowers in the U.S. owe roughly $1.7 trillion in student loan debt, both in public and private loans.
Student Loan Servicers
As Megan Leonhardt of Fortune has observed, extending the pause on student loan payments, may not only help borrowers, but also loan servicing companies. In responses to lawmakers’ questionnaires last month, loan servicers reported that they, too, have concerns about being prepared to restart payments because many will need additional staffing and resources to provide sufficient support.
Additionally, two major federal student loan servicers, FedLoan Servicing and Granite State Management & Resources, recently announced that they will be ending their contracts to service federal loans. That means nearly 10 million student loan borrowers will need to be transferred to a new loan servicer in the next few months.
The Biden administration has taken steps to wipe out debt for students from for-profit colleges and troubled schools. Also, the administration may be open to extending the payment pause. Education secretary Miguel Cardona said during a June hearing that the administration is considering extending the payment freeze again.