(CNN) – Federal student loan payments are set to resume on October 1, after an unprecedented 19-month suspension that was put in place to provide financial relief to borrowers during the pandemic.
Borrower balances have effectively been frozen for over a year, with no payments required on federal loans since March 2020, when Congress first authorized the hiatus under one of its first major Covid relief programs.
Meanwhile, interest stopped accumulating – saving the average borrower about $ 2,000 in the first year – and collections on overdue debts were suspended.
The relief is even greater for those working in the public sector and may be eligible for a loan forgiveness after 10 years. They still receive credit for those 10 years of required payments as if they had continued to make them during the pandemic, as long as they are still working full-time for eligible employers.
The pause on payments and the interest waiver are automatic, but only apply to loans held by the federal government. This covers about 85% of all federal student loans, including those known as Federal Direct Loans and PLUS Loans that parents take out on behalf of their children. It excludes certain federal loans that are guaranteed by the government but are not technically owned by it. In general, these were disbursed before 2010.
No more unlikely relief
The break on payments was initially supposed to stay in place for seven months, but was extended by the Trump and Biden administrations. It is unlikely to be extended again as the economy rebounds.
President Joe Biden extended the relief from January to October 1 and also suspended collection of delinquent loans from private lenders, which were previously excluded from protection.
But those efforts don’t go far enough for some Democratic Party leaders – including Senate Majority Leader Chuck Schumer and Massachusetts Senator Elizabeth Warren – who are asking for the blanket cancellation of $ 50,000 per borrower.
The move would be unprecedented, but a memo from lawyers at Harvard Legal Services Center and its Predatory Student Loans Project says the Education Department has the power to do so.
He may not have the support of more moderate members of the Democratic Party. A study by the Committee for a Responsible Federal Budget found that canceling student debt would give the economy a relatively small boost, and most of the relief would go to those with higher incomes and tend to have more debt.
Biden resists calls for debt cancellation
Biden has resisted the pressure so far, but said he would support a Congressional decision to write off $ 10,000 per borrower. He asked Education Secretary Miguel Cardona to write a note on the president’s legal authorities to cancel the debt, White House chief of staff Ron Klain said in an interview with Politico last month.
Biden did not include a student debt cancellation provision in his $ 1.8 trillion U.S. plan for families, which calls for making community colleges free and expanding Pell Grants for low-income students .
Since taking office, Biden has given some loan forgiveness to defrauded borrowers who attended for-profit colleges by reversing a controversial Trump-era policy. This decision results in the cancellation of approximately $ 1 billion in student debt. The administration also waived a paperwork requirement during the pandemic for borrowers with disabilities to receive approval for a loan forgiveness.
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