Federal Student Loan Payments on Hold Until 2023 — What Comes Next

Nearly 37 million federal student loan borrowers are getting an additional four months of reprieve from payments. The White House cited the current high inflation rate as the primary reason for extending the pause through Dec. 31.

Wednesday’s announcement was coupled with a much bigger deal: The long-awaited $10,000 in student debt cancellation for borrowers and up to $20,000 for borrowers who also received Pell Grants. It’s only for undergraduate debt and will only be granted to those who meet income requirements: $125,000 maximum as individuals or $250,000 for couples filing their taxes jointly.

There have been seven extensions since the federal student loan payment pause went into effect in March 2020. The reprieve was initiated at the onset of the pandemic as mass unemployment loomed.

Despite the previous extensions making borrowers wary about the news of a restart, expect repayment to resume come January 2023. The White House has explicitly said this would be the last extension.

Here’s what another extension of the payment pause will mean:

  • Borrowers will have had 33 months without having to make a payment.
  • The pause has been interest-free, which means loan principals haven’t grown since it started.
  • Borrowers seeking forgiveness through Public Service Loan Forgiveness and income-driven repayment forgiveness will be 33 months closer to seeing the remainder of their debt canceled.

What the pause has done for borrowers

The pause was initially intended to ease financial pressure on borrowers during the early days of the pandemic.

All of this time without payment has helped borrowers manage their finances. Borrowers didn’t have to pay, on average, $210 per month, according to a March 2022 report from the Federal Reserve Bank of New York. Most borrowers improved their credit standing, and 44% reduced their use of credit cards, according to a March 2022 report from California Policy Lab. Those who did make payments — about 18%, according to the New York Federal Reserve —  potentially lowered their debt faster by taking advantage of 0% interest.

Many borrowers will have had their debt canceled before the restart begins. Since the start of the Biden administration, at least 1.6 million borrowers have received more than $32 billion in student debt discharges through improvements to existing student loan forgiveness programs like Public Service Loan Forgiveness and borrower defense to repayment.

But some borrowers won’t be able to make payments even after forbearance ends; it’s good to explore your repayment options well before then.

Another extension breeds uncertainty

While many federal student loan borrowers have seen their loan balances drop to zero, most borrowers still have debt. After 33 months without payments and logistics to work out around delivering cancellation to borrowers, there’s still a lot of uncertainty.

“We need to wait for guidance,” says Scott Buchanan, executive director of the Student Loan Servicing Alliance, representing government-contracted private student loan servicers. “If you call today asking for details, we have nothing to provide. I encourage borrowers to understand that outreach will occur when it’s time for outreach and until then, there’s nothing they need to do.”

According to several news surveys, borrowers with student debt are already more likely to put off crucial financial choices tied to big life decisions, such as getting married, having a child or buying a home.

This lengthy restart delay could mean some borrowers are continuing to delay making financial decisions until their debt is gone. Others may be making financial choices they can afford — like buying a home — but that might be a stretch to keep up with once payments restart.

In fact, says Buchanan, it’s best not to make any major financial decisions based on a cancellation or an extension.

“There are a lot of details to work through, including an implementation timeline of when cancellation is going to happen or whether it’s going to happen [for you],” says Buchanan. “It’s critical that people don’t choose to buy a more expensive car or do something else premised on getting $10k in loan forgiveness until that actually happens.”

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