EXPLAINER: Biden extends student loan freeze through August

FILE - Secretary of Education Miguel Cardona speaks during a visit with first lady Jill Biden to Bergen Community College in Paramus, N.J., Jan. 20, 2022. The Biden administration plans to freeze federal student loan payments through Aug. 31, extending a moratorium that has allowed millions of Americans to postpone payments during the coronavirus pandemic. The decision was confirmed by an administration official familiar with the White Houses decision-making. (AP Photo/Seth Wenig, File) (Seth Wenig, Copyright 2022 The Associated Press. All rights reserved.)

The Biden administration on Wednesday announced that federal student loan payments will remain paused through Aug. 31, extending a freeze that began in 2020 but was set to end after this month. The action is meant to help millions of borrowers regain financial footing before they’re back on the hook for payments.

Here’s more on the decision:


The extension gives Americans another four months to get ready for student loan payments to restart. Borrowers won't be asked to make payments until after Aug. 31, and interest rates will remain at 0% during that time. Under the new action, people who were behind on payments before the pandemic will automatically be put in good standing. That’s a change from previous policy, which required borrowers in default to make nine consecutive loan payments and apply to exit default. Education Secretary Miguel Cardona said the extra time will help his agency prepare borrowers for a “smooth transition back to repayment."


The moratorium applies to most federal student loan programs, including the Direct Loan Program, which issues subsidized and unsubsidized student loans. It does not apply to private loans issued by banks or schools. The latest federal data show that more than 43 million Americans have student loans amounting to a combined $1.6 trillion.


The freeze has been extended multiple times as a reprieve for Americans facing financial hardship during the pandemic. In announcing the latest action, President Joe Biden said that while the nation has seen economic growth, Americans are still recovering. He said the extension will help borrowers “continue to get back on their feet after two of the hardest years this nation has ever faced.” It came amid rising fear that many borrowers would quickly fall behind if payments resumed in May. A memo from the Federal Reserve last month warned that without more time, delinquency rates “could snap back from historic lows to their previous highs.”


Colorado's Alisa Rizo said the pause in payments has provided a path toward independence. After graduating from Colorado State University, Pueblo in 2018, she has been living with her parents in Pueblo while she pays down $24,000 in student loans. The pause has allowed her to save money in hopes of living on her own, closer to her work in Colorado Springs. “It's lifted a huge burden from my back and it has provided me a lot of flexibility to save money,” said Rizo, who works at a housing nonprofit.

Kristin McGuire of Covina, California said the freeze has given her a break from her $50,000 in student debt, allowed her to repair her credit and refinance her home with her husband. But she said the piecemeal extensions have brought their own stress. "We still have this huge balance that’s looming over our heads, and we’re constantly just hoping and praying for reprieve,” said McGuire, executive director of Young Invincibles, which is among the groups pressing for debt cancellation as a more permanent solution. “We can put folks right back into good standing, but we’re setting them up to fail again when we have these ballooned balances,” she said.


Federal student loans have been suspended for more than two years. In March 2020, the Trump administration gave borrowers the option to pause payments for at least 60 days. Congress made it automatic soon after as part of a pandemic relief package. The moratorium was later extended multiple times by Trump and Biden.


White House press secretary Jen Psaki didn't rule a further extension when questioned at a Wednesday briefing. “We’ll continue to assess,” she said. “While of course the economy is in better shape than it was a year ago and we have a strong recovery, we also understand that there are a range of impacts that are still longer lasting because of the pandemic.”


In addition to the loan pause, the Biden administration has been working to revamp certain programs that allow borrowers to have debt erased. The Education Department has relaxed rules for a notoriously complex program known as Public Service Loan Forgiveness and for another program that erases student debt for Americans with disabilities. The agency has approved $2 billion in debt cancellation for people who were defrauded by their colleges, plus $1 billion for students who attended the now-defunct ITT Tech for-profit college but left before graduating. Some Democrats have called for additional changes to the student loan system, including an overhaul of repayment plans that critics say are overly complex and difficult to navigate.


As a presidential candidate in 2020, Biden said he would “immediately cancel a minimum of $10,000 of student debt per person.” That hasn’t happened. The White House has said Biden would sign legislation canceling up to that amount if it were passed by Congress, but it has resisted calls to erase debt using executive action. Democrats including Sen. Chuck Schumer and Sen. Elizabeth Warren have pressed Biden to cancel $50,000 across the board, saying it would further boost the economy and address racial inequities in student debt. In a statement, those Democrats applauded the new extension but said it underscores the need for “swift executive action” to cancel debt. Asked about it Wednesday, Psaki said Biden “has not ruled out" the possibility, but had no further updates.


Borrower advocacy groups welcomed the extension, but many said it isn’t enough. The NAACP urged Biden to forgive at least $50,000 for student borrowers. “With each and every repayment extension, you make a stronger case for canceling it,” the group said. The Center for Responsible Lending made the same demand, saying that while the latest action will give some borrowers a fresh start, “their debts remain the same.” Democrats in Congress applauded the pause, while Republicans blasted it as a drain on taxpayers. Sen. Richard Burr, the ranking Republican on the Senate education committee, said the administration “wants to have their cake and eat it, too: they want to tout America’s return to normal following the pandemic, but also want to keep extending emergency relief policies.”