You should expect these 4 things to happen if your student loans don’t get paused again.
Here’s what you need to know — and what it means for your student loans.
In a letter to President Joe Biden, a group of more than 60 U.S. senators — including Elizabeth Warren (D-MA) and Chuck Schumer (D-NY) — want student loan relief extended beyond September 30, 2021, when it’s scheduled to expire. The Cares Act — the $2.2 trillion stimulus package — paused federal student loan payments, set federal student loan interest rates to 0%, and halted collection of student loans in default. President Donald Trump and Biden each extended this student loan relief to help student loan borrowers. Biden also extended this student loan relief to 1.1 million student loan borrowers with FFELP Loans. The U.S. Department of Education estimates that student loan borrowers will get more than $90 billion of student loan cancellation during the Covid-19 pandemic through this student loan relief. If Biden doesn’t extend student loan relief for at least six months — until March 31, 2021 — the senators say at least 4 bad things could happen:
1. Student loan borrowers will default on their student loans
The senators note that 1 million student loan borrowers default on their student loans — each year. The student loan default at that pace happened prior to the Covid-19 pandemic. The senators say more student loan borrowers could default going forward — even if Biden has now cancelled $3 billion of student loans since becoming president. Why? The negative impact of Covid-19, unemployment and other financial distress could make it difficult for student loan borrowers to pay off student loans and make ends meet. This could hurt the credit scores of student loan borrowers and damage their credit.
2. Student loan payments will hurt the economy
The senators claim that restarting student loan payments now will hurt the economy. Likely, the senators mean that if student loan borrowers have to make student loan payments now, they will have less discretionary income. If they have less discretionary income, they may be less willing to spend money in their local economies and support local business. That aggregate impact could hurt the overall economy, the signatories imply. Warren and Schumer have made similar arguments about wide-scale student loan cancellation. They say student loan cancellation would stimulate the economy and help student loan borrowers have extra income to pump into the economy in addition to saving for retirement, buying a home and starting a family.
3. Student loan payments will happen during foreclosures, evictions and no unemployment benefits
The senators argue that not extending the student loan payment pause is bad for the economy, but it’s also bad timing. For example, during this summer and fall, there could be a wave of foreclosures, evictions as well as other potential financial distress. Why? Starting June 30, 2021, absent any extension, the federal moratorium on foreclosures and evictions is expected to expire. This means that 8 million households could face foreclosure or eviction starting next week. In September, the federal unemployment benefits from the American Rescue Plan are expected to expire. The combination of potential financial distress would only be compounded if student loan borrowers also would need to start making student loan payments again, according to the letter’s signatories.
4. Student loan servicers will fail student loan borrowers
The senators are skeptical of student loan servicers and their ability to process student loan payments correctly. They imply that student loan servicers have not been held accountable or support student loans borrowers as much as they should have. Some critics have claimed that student loan servicers failed you during the Covid-19 pandemic. The senators worry that student loan servicers will be ill-prepared to restart student loan payments and enrollment in income-driven repayment plans after September 30, 2021. If there is no extension of this student loan relief, the U.S. Department of Education in coordination with student loan servicers will send you correspondence about making student loan payments again beginning October 1, 2021. You should also update any autopay accounts and make sure you understand your monthly payment and student loan balance. You can contact your student loan servicer if you have any questions about your student loans or making student loan payments.
Biden may extend pause on student loans beyond September 30, 2021
While there’s no guarantee, Biden could extend the pause on student loan payments beyond September 30. For example, Biden could extend the student loan payment pause through December 31, 2021. During congressional testimony last week, U.S. Secretary of Education Miguel Cardona said that discussions regarding a possible extension were ongoing. “We are continuing conversations about if [September 30, 2021 is] the best time [to end the pause on student loan payments],” Cardona said. “No announcements today, but we continue to have those conversations.”
If student loans are paused or resume on October 1, you still need a student loans game plan. Here are some smart options to save money: