- The payment pause and interest waiver
on federal student loans has been in effect
for quite some time, maybe even longer than we realized.
So is it going to be extended again, for the sixth time?
inquiring minds want to know.
Here's what we found out.
(lively music)
Hey guys, it's Justine with The College Investor:
Investing and Personal Finance for Millennials.
Let's talk about this payment pause
and interest waiver
because we have all been enjoying not being required
to make any payments.
There's no interest accruing on those federal student loans.
And so it gives you the flexibility
to either pay those down while there's no interest
or refocus and shift that debt payment
to something else in your personal finances.
Now, at the time of this recording,
that waiver is set to expire on May 1st, 2022.
And that means that this pause, this waiver
has been in effect for 26 months,
just over two years.
And that accounts
for roughly $125 billion of waived interest.
Okay, so let's ask this question.
Can the payment pause be extended further?
Well, according to the HEROES Act of 2003,
any kind of waiver or modifications
to this type of program
can only be approved in connection
with a national emergency.
And because the pandemic was declared a national emergency,
we're still able to see those extensions
of the student loan payment
and interest waiver again and again
because we are still in this national emergency.
Another thing to note
is that there's also a limited
public service loan forgiveness waiver
that's extended through October 31st of 2022.
And because this modification was allowed
because we have a national emergency,
it may indicate that the Biden administration
will also push and extend this waiver one more time
for everybody with federal student loans
until October 31st of 2022.
But this really is all up to President Biden
and whether or not he will continue this for a sixth time.
In fact, according to a CNBC student loan survey,
29% of borrowers believe
that repayment will resume on May 1st
and 26% believe the president
will extend the payment pause again.
28% believe some student loans will be forgiven
and 14% believe that all student loans will be forgiven.
I don't see that happening but that's just me.
Also, some other interesting statistics
that came out of this survey
is that 19% of Republicans support forgiveness
of all student loans,
compared with 43% of Independents
and 46% of Democrats.
There are also some divisions based off of demographics.
More women than men support student loan forgiveness.
Plus, Black and Hispanic survey respondents
are more likely to support student loan forgiveness
than White and Asian respondents.
Younger respondents are more likely
to support student loan forgiveness,
45% of Gen Z and 43% of Millennials
versus 32% of Gen X and 23% of Baby Boomers.
Plus low-income respondents and borrowers
who owe more than others
that don't are more likely to be in favor
of student loan forgiveness.
That makes sense, right?
Like if you're the person who's going through this
and it's really difficult for you to pay off those loans,
you would definitely be in support
of some sort of forgiveness program.
All this to be said,
the most recent extension of the payment
and interest pause really was driven by politics
and not policy.
A lot of people thought that student loans
and employment would get back to pre-pandemic norms
by the end of 2021.
In a lot of ways,
it has kind of returned to pre-pandemic levels.
The unemployment rate for January 2022
was just at 4%, which was the same as it was
in January 2019 before the pandemic.
Also, deferment, forbearance,
delinquency and default
are all at the pre-pandemic norm normal rates.
So with all this normalization coming into place
and seeing hey, like borrowers actually can get back
to making their student loan payments,
it does kind of make you question
whether or not we're actually going
to see a sixth extension.
Though with the pandemic and the recent Omicron variant
that popped up, there's always going to be a little bit
of that hesitation
because we just don't know what this pandemic is going
to do and how long it's going to last
with these new variants popping up.
And again, it's a house divided.
Some Democrats really want to see another extension,
some want just a blanket student loan cancellation
for everybody and then there are others
who are just not into it at all.
In fact, Representative Virginia Foxx
of North Carolina said
that "President Biden's latest extension
is a troubling trend toward blank student loan forgiveness,
which would be a massive mistake,
with major consequences for borrowers and taxpayers."
Now, a broad student loan forgiveness
can only be authorized by Congress.
This cannot go through just a lone executive order
from President Biden.
There really has to be approval from Congress.
And who knows if we will ever see that happen.
So the path forward may be based off
of some political decisions
and that really kind of is unfortunate
because I think the decision should be based off
of how many people,
how many borrowers this actually impacts.
Okay, so what can you do as a borrower right now?
Well, we know, in fact, that this extension
is going to end May 1st, 2022.
There's a couple of ideas
that you can play around with.
If you have no emergency fund
and you have high-interest debt,
perhaps you focus on those as a goal first.
Paying down that high-interest debt
while this debt is just dormant
and on a freeze until May,
focus on setting aside extra money
for an emergency fund.
God forbid you lose your job,
you experience an accident, your cell phone breaks,
you have the funds set aside
that prevents you from going into debt.
You'll also wanna focus on high-interest debt,
such as credit cards
because we know that interest is accruing very rapidly
whereas the student loan debt is just dormant
and you can focus on that when the time comes.
You can also sock away cash
so that when the payments come back into play,
you already have some cushion to kind of ease yourself back
into making those monthly payments again.
Next, you'll wanna focus on your budget.
Know exactly what income is coming in,
what expenses are going out,
including your debt payments.
You'll wanna make a written list
of all of your debt
and all of your fixed and fun expenses
so you know exactly what to calculate
and budget for accordingly.
I don't think you can really bank
on a broad student loan forgiveness just yet,
and I don't think you can bank
on there being truly an extension until it happens.
So always plan for a worst case scenario
and hope for the best.
Maybe it will happen
and then you'll be that much further ahead
because you were planning for a worst case scenario.
If you are needing more assistance
and financial relief with your student loans,
be sure to check out our free resources
all about student loan debt,
and how you can advocate for yourself
at thecollegeinvestor.com
and we'll catch you in the next one.
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