Federal student loan payment freeze expires December 31

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  • A freeze on federal student loan repayments and interest is set to expire on Dec.31, just weeks before President-elect Joe Biden takes office.
  • Without President Donald Trump’s extension, millions of Americans would have to resume these payments in order to avoid penalties.
  • It will be up to the Biden administration to sort out the issue during the new president’s first few weeks in office.
  • Visit the Business Insider homepage for more stories.

Weeks before President-elect Joe Biden officially takes office, a temporary freeze on federal student loan payments put in place by President Donald Trump is expected to expire, and without the possibility of renewing this moratorium first, Biden would inherit the try to address the problem.

Congress passed a bill in late March suspending payments on federal student loans and interest. In August, Trump extended the freeze until December 31. Borrowers were allowed to take advantage of the zero interest period to continue repaying the principal of their loans, if they wished.

With more than 40 million student loan borrowers in the United States, experts told Business Insider US that ending the suspension of payments could be detrimental to individual borrowers, the economy, and even loan officers.

Americans could struggle to make their payments in the absence of a new moratorium on student loans, and the Biden administration would have to find a solution to the likely economic consequences, a process that could take months to complete.

Scott Buchanan, executive director of the Student Loan Servicing Alliance, told Business Insider US that the looming uncertainty surrounding the student loan freeze is causing problems for service workers. Buchanan says Politico the federal student loan system “was not designed to start and stop at the same time for 30 million borrowers.”

The Education Department has already started reminding borrowers that payments will resume soon and has offered advice on the resources available to them, including a number of repayment and deferral options.

Without a solution extending the suspension of payments, the number of requests for assistance could potentially overwhelm companies handling federal student debt. Betsy Mayotte, president of the Institute of Student Loan Advisors, told Business Insider US that services could experience delays that would negatively impact consumers.

Mayotte said the freeze on student loan payments helped officers respond to borrowers’ requests for help. Without the moratorium, it would have been difficult for service officers and the US Department of Education to manage demand, especially since they also navigated COVID-19 and managed employees who worked from home.

“I suspect the delays would have been huge. There would certainly have been borrowers who fell through the cracks there,” Mayotte said.

To address the millions of federal student loan accounts that would emerge from the December 31 payment freeze, Buchanan suggested implementing a phased repayment system where borrowers who need the least help can opt for repayments first. . It is not clear how providers would determine which borrowers fall into this category, or how companies would encourage them to resume payments before financially strapped customers.

Young man at home paying bills online


Aleksandar Nakic / Getty Images


And after

A week before Thanksgiving, the future of the federal student loan freeze remains uncertain. The Trump administration could decide to extend it, or if it ends, the new Biden administration could follow a different path, or renew it retroactively when the president-elect takes office. And the likelihood of Congress addressing the issue as part of a new stimulus package before the end of 2020 is slim.

Mayotte said it did not anticipate that the Trump administration would likely extend the moratorium and that the Biden administration was likely to issue orders to reinstate a freeze.

Read more: EXCLUSIVE: Documents reveal Trump is building his own ‘deep state’ leaving behind government political appointees for the Biden administration

There are other likely pain points. It could be weeks or months before loan managers implement a new freeze that could occur after the current freeze ends.

It took weeks for the Education Department to freeze all payments in March. Besides, CNN reported in May that the ministry had been prosecuted for continuing to collect loans from defaulting borrowers. In addition, as much as 5 million borrowers experienced technical errors from providers that impacted their credit scores and took time to correct them.

Michele Streeter, senior policy analyst at the Institute for College Access & Success, told Business Insider US that the suspension of payments has not only been helpful in keeping people from defaulting and delinquent, it made it possible to focus on other necessary expenses.

“So many people have suffered loss of income or lost jobs or have had their hours cut or had additional expenses due to the pandemic. It gave them some leeway and gave them space to stretch. more their resources, “says Streeter.

She added that defaulting and delinquency are not easy for borrowers either, and the freeze has helped prevent wages from being garnished. financial leverage.

Read more: Trump has waged a 4-year war on the press. Here’s what 5 White House briefing room insiders expect from the Biden era.

The current COVID-19 pandemic is far from over, and many public health experts have warned that the United States is in the deadliest wave to date. As cases increase and the United States continues to break single-day case records, many states and localities are reimplementing modified lockdowns to slow the spread of the virus. The COVID-19 monitoring project reported on Friday 193,000 new cases.

For some people, ending the student loan freeze could lead to more defaults and force borrowers to make tough decisions about their bills. Streeter said this is particularly the case as it is likely that there would be delays in processing applications for new safety net programs.

“They’ll either decide not to make a payment because they can’t afford it. They don’t really have a choice and then they start getting into delinquent and potentially defaulting,” Streeter said.

“Or you see people trying to make payments they can’t afford and forgo paying for other necessities because of it.”

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