With the federal student loan forbearance period expiring in October, most borrowers will have to start paying off their student loans for the first time since March 2020—if that deadline stands. But will the moratorium be extended again? Here’s a look at the latest on student loan forgiveness.
Will the student loan forbearance be extended past October?
The chances for a forbearance extension has recently improved, although there’s no guarantee it will happen. As Politico reports, officials from the U.S. Department of Education are recommending that the White House extend the moratorium through January 2022, although this stance has not been publicly stated yet.
And last week, Democratic Sens. Elizabeth Warren and Edward J. Markey sent a letter to President Biden urging for an extension of the moratorium to at least March 31, 2022. The letter points to ongoing servicer issues—as servicers say they’re still understaffed—along with the ongoing financial hardship for borrowers, citing a June survey in which 90% of respondents said they were not ready to resume loan payments in October.
There’s also the recently announced departure of servicers Granite State and FedLoan from the federal student loan program as of Jan.1, 2022, which will affect roughly 10 million borrowers. As Forbes points out, servicing transfers by Department of Education contractors has been historically chaotic, with widespread problems including lost records and missing payments. By moving the moratorium to the end of the year, there would be more time for servicers to prepare.
What about student loan forgiveness?
Biden is waiting on a memo from the Department of Education on the legality of the president forgiving student loan debt through executive action. While progressive Democrats have said that Biden could cancel up to $50,000 in student debt with “the flick of a pen,” the legality of such a move isn’t that clearcut.
Plus, debt forgiveness is a much more contentious issue that is unlikely to pass through Congress without removing the filibuster. Critics of blanket debt relief say that it’s unfair to people who don’t go to college, that it doesn’t address the rising cost of tuition, and that any forgiveness should be more targeted toward those with lower incomes.
In the meantime, President Biden has canceled $3 billion in student loan debt by beefing up existing loan relief programs through executive action. The Department of Education is pursuing additional reforms that should make it easier for distressed borrowers to qualify for student debt relief, but they’ll likely take up to a year to finalize.
While an extension seems more likely than debt forgiveness, borrowers should prepare themselves for regularly scheduled payments starting in October—just to be safe. If you can’t make those payments, consider applying for an income-driven repayment plan.