#1 Student Loan Lawyer
Updated on December 20, 2022
The White House extended the federal student loan payment pause and interest rate freeze following legal battles that have blocked President Biden’s plan to cancel billions of student debt.
Payments were set to resume on Jan. 1. But now they could be delayed until late summer. Unless the president extends the moratorium once more, repayment will start either:
60 days after the U.S. Department of Education is allowed to implement the president’s sweeping debt cancellation plan, or
60 days after June 30, 2023 (technically, Aug. 29, 2023).
The Biden administration extended the pause on student loan repayment after Republican legal challenges in Texas and Missouri temporarily halted the president’s plan to cancel up to $10 thousand in federal student debt for individuals who earned less than $125 thousand during the pandemic and up to $20 thousand for Pell Grant recipients.
“Republican special interests and elected officials sued to deny this relief even for their own constituents,” President Joe Biden said in a video released on Twitter. “It isn’t fair to ask tens of millions of borrowers eligible for relief to resume their student debt payments while the courts consider the lawsuit.”
Over 26 million people have applied for the forgiveness plan. The Education Department has approved 16 million applications. But court orders have blocked the department from moving forward with the promised debt forgiveness. Last month, the department stopped accepting applications, citing the injunction issued by a federal appeals court in Missouri.
The Justice Department filed an emergency application asking the justices to lift that hold. The Supreme Court agreed to hear the case and set the hearing date for Feb. 28, 2023. The Court is expected to issue a decision before the latest payment pause extension ends.
“I want borrowers to know that the Biden-Harris Administration has their backs and we’re as committed as ever to fighting to deliver essential student debt relief to tens of millions of Americans,” Education Secretary Miguel Cardona said.
Which student loans are paused?
All borrowers with federal student loan debt held by the Education Department have been able to skip payments and avoid having interest added to their loan balance since the pandemic shut down the US economy. Eligible student loans include:
Direct federal student loans
Federal Family Education Loan loans held by the department.
Federal Perkins Loans held by the department.
Defaulted FFEL loans not held by the department.
Defaulted Health Education Assistance loans.
Loans that aren’t eligible for student debt relief include:
Privately-held FFEL Loans in good standing
Federal Perkins Loans not held by the department.
Nondefaulted HEAL loans
Private student loans
If you’ve had to keep paying your federal loans throughout the pandemic, you can put them on hold by consolidating them into a Direct Consolidation Loan. Visit the Federal Student Aid website, StudentAid.gov, to start the consolidation process and choose one of the student loan repayment plans to repay your debt.
Once the consolidation completes, payments for your new loan will be on hold until late summer. You’ll also gain credit toward Public Service Loan Forgiveness and Income-Driven Repayment Plan Forgiveness.
Confusion about the payment freeze
At the outset of the coronavirus pandemic in March 2020, President Donald Trump suspended monthly payments and set the interest rate to 0 percent for federal student loan borrowers with loans owned by the Education Department.
That last part was key.
Only Ed-owned student loans were covered by the payment waiver and the subsequent pause extensions, which have stretched across two presidential administrations. Confusingly, the department doesn’t own all federal loans. Some are owned by private companies and state guaranty agencies. These privately-held loans are relics of now-defunct programs that allowed colleges, universities, and banks to make federally-backed loans to students and parents.
The government ended the Federal Family Education Loan and Federal Perkins Loan programs by the mid-2010s. Still, hundreds of thousands of Americans owe money for loans made through those programs. Many have missed out on the Covid-forbearance and other opportunities for debt relief like President Biden’s student loan forgiveness program.
But missing out on those benefits was the tip of the pain for some. Several borrowers got a nasty surprise a few months into the freeze: their credit scores had tanked. The reason? They mistakenly believed their student loans were on hold and they could skip their monthly payments.
Unfortunately, the mistake was there’s to bear alone. Neither the Education Department nor their loan servicer stepped in to help borrowers remove the delinquency from their credit reports.
What happens to borrowers with defaulted loans?
Last year, the Education Department announced a plan to offer borrowers with delinquent or defaulted loans to return their accounts to good standing. That will let those borrowers access a variety of federal benefits, including:
Income-driven repayment plans, deferments, and forbearances.
Relief programs like PSLF and the IDR Waiver.
New financial aid — federal loans, grants, and work-study — so they can return to college.
The initiative will also remove the default status from their credit reports and the collection fees from their loan balances. Read more about the Fresh Start student loan program.
Federal student loan payments are paused until next summer to give time for the litigation surrounding the president’s debt cancellation plan to be resolved. If you haven’t already done so, reach out to the company that has your loans to update your contact information and get details about your account, including your loan balance and which repayment plan you’re enrolled in.
Book a call with me if you’d like help with your student loans. I’ve helped a number of people like you wade through these similarly sounding debt relief opportunities to find the right strategy to get rid of their debt.