WASHINGTON (AP) — The Biden administration plans to freeze federal student loan payments through August 31, extending a moratorium that has allowed millions of Americans to defer payments during the coronavirus pandemic, according to an official. administration familiar with White House decision-making.
Student loan repayments were due to resume on May 1 after being halted since the start of the pandemic. But following calls from Democrats in Congress, the White House plans to give borrowers additional time to prepare for payments.
The action applies to more than 43 million Americans who owe a combined $1.6 trillion in student debt held by the federal government, according to the latest data from the Department of Education. This includes more than 7 million borrowers who have defaulted on their student loans, which means they are at least 270 days late.
Borrowers will not be asked to make payments until August 31 and interest rates are expected to remain at 0% during this time.
The extension was first reported on Tuesday by Bloomberg.
Democrats on the House and Senate education panels recently urged President Joe Biden to extend the moratorium through the end of the year, citing continued economic dislocation.
Senator Patty Murray said more time is needed to help Americans prepare for repayment and to rethink the government’s current system for paying off student debt.
“It’s ruining lives and holding people back,” she said in a statement last month. “Borrowers are grappling with rising costs, struggling to get back on their feet after public health and economic crises, and struggling with a broken student loan system – and all of this is particularly felt by borrowers of color.”
Murray called on the Biden administration to lift all borrowers from default to provide a “fresh start” after the pandemic.
The decision comes amid growing concern that large numbers of Americans would quickly fall behind if payments restart in May.
In March, the Federal Reserve Bank of St. Louis warned that the resumption of loan repayments could place a heavy burden on borrowers who have encountered financial difficulties during the pandemic. He said the impact would be hardest on black families, who are more likely to rely on student loans to pay for their college education.
“Severe delinquency rates for student debt could return from historic lows to previous highs in which 10% or more of debt was in default,” the bank said.
The Trump administration initially gave Americans the option to suspend loan repayments in March 2020, and Congress made it automatic soon after. The hiatus has been extended twice by the Trump administration and twice more under Biden.
Whether Biden will pursue widespread debt forgiveness to reduce the nation’s student debt remains to be seen. Some Democrats in Congress have pressed Biden to use executive action to cancel $50,000 for all student loans, saying it would jump-start the economy and help black Americans who on average face levels of higher student debt.
Last year, Biden asked the Education and Justice Departments to review the legality of widespread debt cancellation, but no decision was announced. Biden has previously said he supports rescinding up to $10,000, but he argued it should be done through congressional action.
Binkley reported from Boston.