As millions of borrowers barrel towards the end of the student loan payment pause, a key Senate Democrat is calling on President Biden to permanently eliminate federal student loan interest.
Student Loan Interest and Payments Have Been Paused For Two Years
Most federal student loan payments have been suspended since March 2020 under the CARES Act, and all federal student loan interest has been suspended – effectively providing millions of federal student loan borrowers with zero-interest loans. Originally intended to last six months, this relief has been extended several times, first by President Trump and subsequently by President Biden.
Biden’s most recent extension is scheduled to end on May 1, 2022, and there is growing speculation that Biden could issue another extension of the payment and interest pause, or enact other forms of student loan relief. Earlier this month, White House Chief of Staff Ronald Klain told Pod Save America that Biden is considering extending the pause as well as providing additional relief for student loan borrowers, including potentially some form of student loan forgiveness. Biden has already opted to extend the suspension of certain collections activities against defaulted borrowers for an additional six months after the pause ends.
Senator Calls For Permanent Suspension of Student Loan Interest
In a letter sent yesterday, Senator Michael Bennet (D-CO) joined a growing chorus of advocates and elected officials calling on President Biden to extend the student loan pause again. Bennet argues that an additional extension is necessary to “help borrowers who are struggling with inflation and higher costs associated with postsecondary education, including the cost of childcare for student parents.”
But Bennett went further and called on Biden to permanently make “most federal student loan interest free.” Bennet argued, “We must do all that we can to ease the financial burden of student loan debt for borrowers who took out loans to pay for college. An increasing number of borrowers are struggling with high student loan debt instead of buying a home, having children, and starting businesses. ”
Student Loan Interest Can Be Crippling For Borrowers
Under a normal payment plan for most forms of consumer debt, a borrower’s monthly payment is sufficient to cover accruing interest as well as some amount of principal. This results in the debt being gradually paid down over time.
But for federal student loans, this is often not the case. During most periods of in-school deferment, hardship forbearance, and grace periods (during which no payments are due), interest typically accrues on most types of federal student loans, resulting in borrowers owing much more than what they started with by the time they enter repayment. For borrowers who are repaying their loans under an income-driven repayment plan (where monthly payments are based on the borrower’s income), their normal monthly payment may not be sufficiently high enough to cover interest that accrues in a given month, resulting in the loan. balance increasing over time – even as they make payments.
To make matters even more troublesome, certain events under federal law can trigger interest “capitalization” – a process whereby all of the accrued interest gets added back to the principal balance. This has a compounding effect. Since interest is charged as a percentage of loan principal balance, capitalization can lead to runaway balance growth.
Studies have shown that interest accrual and capitalization can trap student loan borrowers in debt for decades. A joint report issued last summer by the National Consumer Law Center and the Center for Responsible Lending found that 63% of student loan borrowers who made payments during the CARES Act payment pause still owe more now than they originally borrowed. One-third of these borrowers owe more than 125% of their original loan balance, despite the fact that no interest has been accruing during the payment pause.
“The data reinforces what we already knew: borrowers want to make progress towards repaying their loans, but our broken student loan system has made it difficult, resulting in loan balances that in many cases greatly exceed the original amount borrowed,” said Center for Responsible. Lending Senior Researcher Robin Howarth in a statement in August.
Will Biden Extend the Payment Pause, Eliminate Student Loan Interest, or Enact Mass Student Loan Forgiveness?
With only 38 days remaining until federal student loan payments are scheduled to resume, time is running out for Biden to act.
“Especially at a time when inflation is on the rise, we cannot ask people to start making these crushing payments again,” said Rep. Pramila Jayapal (D-WA), Chair of the House Progressive Caucus, in a tweet yesterday. “It’s time to cancel at least $ 50,000 of student debt per borrower.” Jayapal is one of many current and former Democratic officials calling on Biden to extend the payment and interest moratorium and enact broad student loan forgiveness.
So far, the Biden administration has not publicly indicated that it has a specific plan to provide more relief. “The president is going to look at what we should do on student debt before the pause expires, or he’ll extend the pause,” said White House Chief of Staff Ronald Klain at the beginning of March. “Whether or not there is some executive action [on] Student debt forgiveness when the payments resume is a decision we’re going to take before the payments resume. “
Further Student Loan Reading
Extend Student Loan Pause To 2023? Biden May Do It.
Who Qualifies For $ 6 Billion In Student Loan Forgiveness Announced By Biden Administration
Biden May Extend Student Loan Pause And Is Considering Loan Forgiveness, Says White House Official
Thousands Of Jobs Qualify For Expanded Student Loan Forgiveness Program