With the moratorium on repayment, interest and recoveries of federal student loans extended until August 31student borrowers might wonder if they can expect another extension beyond that date.
After all, President Joe Biden has extended the student loan payment moratorium four times since taking office, the latest being described as the “final” extension when it was announced last January.
There is also the issue of loan forgiveness for all student borrowers. Democrats and President Biden have both floated the idea of at least $10,000 in block forgiveness for student borrowers, but it has yet to gain traction in Congress — Biden’s preference — or as a Executive Decree.
Last Friday, things became a little clearer: White House press secretary Jen Psaki said on the Save America Podcast that a “decision” will be made on a further extension and possible loan forgiveness before the current student debt payment freeze expires on August 31. PSAKI also said debt cancellation through executive action is “still on the table.”
Debt forgiveness faces legal hurdles
While President Biden supports canceling $10,000 in student debt, he has also questioned his legal authority to do so through an executive order. Last year, Biden requested a memo from the Department of Education to determine his authority, but at this time it’s unclear whether the memo process is complete or what the findings might be.
But even if Biden is granted the authority, that still doesn’t mean student loan cancellation through executive action is likely to happen, says Leslie Tayne, a debt relief lawyer at the Tayne Law Group.
There are too many legal hurdles to rolling out blanket pardons, Tayne says. She predicts that the Biden administration will continue to provide targeted relief through existing government debt relief programs, as it has done since taking office.
“If you qualify for a category where you get loan forgiveness, then fabulous, but if not be prepared to repay the loans,” Tayne says. That said, she would not be surprised by a further extension of the payment freeze until the end of the year.
This comes on top of previous reforms that resulted in more student loans being forgiven. Last year, the Biden administration expanded eligibility for the Public Service Loan Forgiveness Program, which repaid about $4.6 billion in loans to public service workers, according to US Department of Education estimates.
Additionally, $415 million in debt has been forgiven for former students defrauded by for-profit schools, through a policy known as defense of the borrower to repayment.
Should you repay your loans?
You may want to pause your payments while a freeze is still in place, at least until a decision is made on general student loan cancellation, which the Biden administration says will happen. before August 31.
That way, you’ll avoid making payments on debt that might be canceled later, regardless of the chances of that happening.
“If you think student loans will be forgiven, then put [those] payments into a high-yield savings account,” says Jay Zigmont, Certified Financial Planner and founder of financial planning company Live, Learn, Plan.
By using a savings account, you can still set aside regular payments, just like paying off the loan. If forgiveness doesn’t occur, you could use those savings to make a lump sum payment on that debt later.
“The key is to have a plan for your loan that is more than a hope that the government will act,” says Zigmont.
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