The federal government quickly took action to ease economic troubles at the onset of the pandemic, and one major relief measure helped millions of student loan borrowers avoid financial ruin. As most people already know, federal student loan payments have been suspended since March 2020. Not only that, but interest rates on most federal student loans are currently set at 0% and collection activities have been suspended.
The current suspension of payments, interest and collection activities could indeed be extended for some time in the future, but at the moment it expires on September 30, 2021. This means that federal student loan borrowers who were able to skip payments without charging interest on October 1, 2021, their financial situation will change dramatically.
Repayments on federal student loans will come again, and interest will begin to accumulate on loans that have been frozen for an unprecedented 17 months. In addition, default students who receive a grace period from their financial obligations will be have to face payment problems forward – for better or for worse.
Unfortunately, this instant change can have huge implications for borrowers who may not be ready to go back to the point where they left off with their loans. In addition, the Department of Education has not done much to train borrowers.
For this reason, some experts believe that President Biden should be phasing in start dates for student loans to reduce the turmoil, or perhaps even give borrowers who are still struggling economically with a chance to extend this benefit for a limited period of time.
What can go wrong if nothing gets done? Actually, a lot of…
Here are just a few reasons why millions of borrowers start paying off their loans on the same day, and especially now, this can be a serious problem.
Loan service changes can create confusion
As Annie Nova of CNBC recently pointed outThe Pennsylvania Higher Education Promotion Agency (PHEAA) recently announced that will not renew his contract – which expires in December – for servicing federal student loans. With this loan servicing service, also called FedLoan Servicing, servicing 8.5 million borrowers, it’s easy to see why getting their customers back on their October 1st loan could be a problem.
FedLoan Servicing customers will need to find a new loan officer and are expected to make the transition in November or December following the first payment to FedLoan Servicing in October 2021.
Given that there are about 43 million student loan borrowers in the US, this change could affect approximately 20% of all student borrowers nationwide.
Other COVID Related Benefits End
Another cause for concern is the fact that other federal government pandemic relief programs are expected to end around the same time. For example, the current moratorium on foreclosure and real estate eviction (REO) expires on July 31, 2021.
In addition, the extended unemployment benefits provided under the CARES Act will expire on September 6, 2021. On the same day, the Pandemic Unemployment Assistance Program, which was also created under the CARES Act, expires.
SNAP renewal food stamps also expire on September 30, 2021. This SNAP bonus increased the amount of benefits received by 15% for more than 40 million people using the program.
These are just a few of the programs that will end this fall unless the Biden administration renews them again. With this in mind, it’s easy to see how some families can struggle with losing important benefits and face student loan payments after more than a year without them all at the same time.
The plagues of the pandemic are not over yet
Finally, let’s remember that the challenges posed by COVID-19 are far from over, with many experts saying we will have a crazy race this fall and winter as the Delta variant picks up steam. New guidance from the Centers for Disease Control and Prevention (CDC) means that wearing a mask can return to full strength within a few weeks, and further social distancing measures may be needed to control the spread of the disease.
We can certainly hope that no major lockdowns will be required and that businesses can remain open across the country, but we also cannot deny that a pandemic could result in reduced working hours or people being unable to work as expected. in which they worked before. Either way, the impact on the business could result in workers having less money to pay off student loans and other bills, especially when other relief measures are due to expire.
Bottom line: Pandemic relief programs may be coming to an end, but the pandemic itself may not. As a result, many student borrowers may be forced to grapple with the new economic reality regardless of whether they are able to do so, and perhaps through no fault of their own.
Will President Biden extend the federal student loan pause?
Recently, Senate Majority Leader Chuck Schumer, Senator Elizabeth Warren, and Rep. Ayanna Pressley publicly called on President Biden to extend the pause in student loan and interest payments beyond the current September 30 deadline to at least March 2022. President Biden forgive $ 50,000 federal student loan debt per eligible borrower through enforcement actions in the new year.
It remains to be seen if student loan payments will remain frozen after September, but it’s easy to see the pros and cons. In the end, the COVID-19 pandemic could create new economic problems for workers who may only be returning to work or their previous income, and the fact that other relief measures expire around the same time could affect borrowers. who are still struggling. disproportionately. On the other hand, borrowers will have to start paying again someday, right?
If you are a borrower who may face unbearable payments in October, know that you have several options. For example, you can see if you are eligible for the traditional federal deferral or abstinence programs that existed before the pandemic, and you can explore income-based repayment options that base your monthly income on how much you earn and forgive the remaining balance after 20-25 years.
Whatever you do, don’t bury your head in the sand and hope that the student debt problem will go away on its own. This will not happen, and the consequences of evading student loan payments will become more real than ever in just two months.