President Biden announced in a statement that the suspension on federal student loan payments will be extended until the end of August. During this time, the Department of Education will look for ways to help borrowers with their repayments.
Originally, loan repayments and interest accrual had been put on hold until May 1st to give people time to recover from the COVID-19 pandemic. As the President said in a speech, not everyone has had the chance to recover fully from this difficult time.
In a statement, President Biden said: “More than 217 million Americans are now fully vaccinated, and 2 out of 3 eligible adults are boosted. We have the tools we need to move forward safely and return to more normal routines.
However, as I recognized in recently extending the COVID-19 national emergency, we are still recovering from the pandemic and the unprecedented economic disruption it caused.
If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggests that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability.”
Helping borrowers get their finances back on track
During previous recessions, there has been a spike in federal borrowing and student loan debt has played a key part in this. Before the pandemic, student debt was already high in the US at $91.1 billion in annual federal student lending in 2019-20, up from $20.7 billion in 1990-91.
Economists have predicted that the end of the student loan repayment suspension could be a rise in loan delinquencies if further measures are not introduced.
President Biden says that an extension will give borrowers time to get their finances in order while the Department of Education’s efforts to continue improving student loan programs.
The Department of Education says that it plans to introduce new support for borrowers with extra flexibility. Giving borrowers extra time will reduce the risk of delinquencies and defaults.
“This includes allowing all borrowers with paused loans to receive a ‘fresh start’ on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing,” the Department noted.