What is the Biden Administration's plan to help student loan borrowers?
President Biden has instituted targeted student loan cancellations since taking office. Here are some examples of student loans that have been canceled:
- $5.8 billion for students with total and permanent disabilities.
- $1.5 billion through the defense to repayment process, covering students misled by the college or university or were victims of fraud.
On August 24, 2022, President Biden announced a new plan to forgive student loan debt for as many as 43 million borrowers. For borrowers who make less than $125,000 per year, or $250,000 a year if filing taxes jointly with their spouse, the plan provides:
- Up to $20,000 in loan cancellation to Pell Grant recipients.
- Up to $10,000 in loan cancellation to federal student loan borrowers.
Loan cancellation means that the debt simply goes away, or a portion of the debt if the amount canceled does not cover it all. Borrowers may be required to apply for the loan cancellation program. The announcement explains that the Department of Education will make an application form available in the coming weeks.
Federal student loan borrowers have additional options to help them with the current financial crisis. By reviewing all the options, borrowers can make better decisions with fewer financial repercussions.
Are federal student loan payments suspended during the pandemic?
The CARES Act, signed into law in March 2020, offered a temporary pause in federal student loan payments due to the pandemic. This pause lasted through September 30, 2020. Further extensions by President Trump left the suspension in place through January 31, 2021. As a result, payments on federal student loans were not required for most of 2020.
When President Biden took office, one of his first actions was extending this pause through September 30, 2021. The pause has now been extended once again through December 31, 2022. This gives former students even more breathing room to focus on their current financial needs for the time being.
Are payments on private student loans suspended during the pandemic?
The laws signed by President Trump and President Biden extend only to federal loan borrowers. Private lenders can offer help to borrowers during the pandemic, but they are under no legal obligation to do so. Most experts believe interest-free forbearance, as is happening on the federal level, is not likely to be offered in the private loan market.
Private lenders often have a disaster or emergency forbearance option for borrowers. These options provide short-term pauses on payments if the borrower faces an emergency, such as an unexpected job loss.
Borrowers who have not had a credit hit as a result of the pandemic may opt to refinance their private loans to more favorable payment terms or interest rates. This is not forbearance or forgiveness, but it can make the loans more affordable overall.
If a borrower with a private student loan is struggling with repayments because of the pandemic, the best course of action is to discuss options with the lender. Many lenders will work with borrowers to make payments more affordable, even though they are not required to do so.
Does interest on federal student loans accrue during the suspension period?
During President Trump's suspension of federal student loan collections, interest did not accrue. Administrative forbearance paused everything, including interest, collection activities, and payments, to allow borrowers to more easily navigate the pandemic. President Biden's extension continues the same rules. Therefore, through December 31, 2022, students with federal student loans will not incur any new interest on their loan balances.
Take Advantage of Student Loan Relief
If you have found yourself struggling financially as a result of the pandemic, or a financial setback, there are options for student loan relief. Even if you have private loans, you can still reach out to your lender to ask for some help restructuring your payments.
Rocket Lawyer offers information and advice at the Rocket Lawyer COVID Legal Center. You can also use the free Rocket Lawyer Hardship Letter to send to your lender.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.