Will the government extend the moratorium on student loan repayments or cancel the loan entirely?

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The moratorium on the payment of student loans and interest rates is scheduled to end on September 30, and those with federal student loans are due to begin repayment. While there is some talk of extending the moratorium, other signs indicate that job recovery will be delayed for a few months at the most. The government has not passed any new stimulus packages or bad loans. And most recently, the federal moratorium on evictions has also ended, with the exception of cities with a high transmission rate of COVID-19, which have been granted an additional 60 days of assistance. And none of the various versions of the upcoming infrastructure spending bill deal with student loan forgiveness.

Against this backdrop, people are asking what the government will do about the growing problem of student loans. Will there be another expansion? Will there be a future student loan forgiveness plan? The politicians’ responses were confusing and contradictory.

Democratic Senators Elizabeth Warren and Chuck Schumer have called for a $ 50,000 forgiveness, although neither proposed a Senate forgiveness bill for a vote of yes or no. Instead, they advised President Biden to do so by decree.

But recently, House Speaker Nancy Pelosi stated that Biden has no right to unilaterally forgive student loans, although he does have the right to postpone.

Biden has repeatedly stated that he supports writing off student loans of $ 10,000 per person, while anything above will require legislative action. He has referred the case to the Office of the Legal Counsel (OLC) of the Department of Justice to determine if it has the legal authority to cancel student loan debt on its own.

The OLC’s opinion will be of great interest, as it will most likely reflect the president’s point of view on this issue. While it may seem like it wants an independent legal review, the OLC can sometimes be as impartial as a Supreme Court judge: impartial on all but important matters.

For example, most recently OLC released opinion stating that the Treasury Department must file former President Donald Trump’s tax returns to the House Ways and Means Committee. This opinion was made public under the leadership of Acting Assistant Attorney General Dawn Johnsen, appointed by Biden earlier in the year. This opinion refutes the previous Opinion 2019 (at the time it was ruled by Trump-appointed Stephen Engel), where it was stated that the order was unconstitutional because the Democratic-controlled committee had no legitimate legislative target for tax returns.

For now, Biden has forgiven student loans on a partial basis, primarily targeting commercial college victims who misled prospective students about their post-graduate job prospects.

While this will sound unpopular, it would be wiser to lift the moratorium on student loans, if circumstances permit, as a long moratorium would create addiction. But if the delta variant of COVID-19 continues to spread, it is possible that the student loan moratorium will be extended. But the federal government should consider requiring proof of vaccination before granting an extension. It is believed that young people less likely to be vaccinated for a number of reasons, so a delay in repayment can be a good incentive to get a shot. There may of course be exceptions based on the advice of a healthcare professional.

As for canceling a student loan based on confusing and conflicting reports, mass forgiveness is unlikely so far. This is a politically sensitive topic among uninitiated voters, and hard-core Democratic voters will not change their votes on this issue alone. I previously stated that forgiving student loans would result in have little effect to stimulate the economy. BUT report of the Committee on Responsible Federal Budget, a non-profit, non-partisan organization, also believes that loan forgiveness will not stimulate the economy.

So what will happen when the moratorium ends? This should not negatively affect the overwhelming majority of debtors. Some will resume their previous payment plan. While others whose finances have been hit by the virus will either enter abstinence or enter into an income-based repayment plan. Others may get new jobs that may qualify them for government service loan forgiveness.

By the end of September, we will know if there will be another extension of the student loan moratorium based on the prevalence of the new delta strain. Responsible people should not put themselves in a financial position when they depend on the moratorium, because one day it will end, no matter how many angry face emojis we post on social media. As for the loan forgiveness, don’t count on it anytime soon, as it’s not a pressing electoral issue and politicians seem to be too busy fighting over who has the power to cancel.


Stephen Chang is a tax attorney based in Los Angeles, California. He helps people with basic tax planning and resolves tax disputes. He is also sympathetic to people with large student loans. He can be contacted by email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and contact him at LinkedIn





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