Democrats want federal student loans paused until March 2022: Here are the options private loan borrowers have
Key Senate Democratic lawmakers are pushing President Joe Biden to extend the federal student loan payment freeze put in place due to coronavirus pandemic last year until at least March 2022, as servicers report that they're unprepared to resume payments this September.
Sens. Elizabeth Warren (D-Mass.), Ed Markey (D-Mass.) and Tina Smith (D-Minn.) sent a letter at the end of June to CEOs of all federal student loan servicing companies, questioning their preparedness to get student loan borrowers back on their loan repayment plan when the forbearance period ends on Oct. 1, 2021. The senators recently released responses from that letter, revealing that servicers were concerned about their ability to end student loan forbearance as well as Americans’ ability to make their student loan debt payments by their October due dates.
If you have private student loans, the payment freeze and temporary 0% student loan interest rate will not apply to your loan. If you are struggling to make payments, visit Credible to find out what your options are including refinancing your loan into a lower interest rate to lower your monthly payments.
FEDERAL STUDENT LOAN RATES JUMP NEARLY 1% IN JULY: HOW TO MAKE THE MOST OF YOUR OPTIONS
After receiving these responses, Warren and Markey then sent a letter to President Biden, urging him to use executive action to extend the payment suspension until March 2022 or until unemployment reaches pre-pandemic levels.
What was said in the letter to Biden?
The Democrats' letter to the president included a strong push in their case to extend the payment freeze for student loans, stating the information they received from servicers was compelling enough to warrant such an extension.
"The resumption of payments is presently scheduled to begin on October 1, 2021, but the information we received in our inquiry strongly supports an extension of the pause on student loan payments and interest," the senators stated. "The responses to our inquiry indicate that neither student loan borrowers nor student loan servicers are prepared for payments to resume, and servicers will need significant time to ensure that staffing and procedures are ready to provide borrowers with a high level of support.
"One servicer described the complexity of the resumption of payments as ‘unprecedented,’ noting that ‘the Federal Student Aid Servicers have never attempted to move 43+ million accounts into a repayment status all at once across the country,’" the letter continued. "We therefore urge you to extend the current pause on payments and interest until at least March 31, 2022."
Private student loan borrowers do not have as many student loan flexibilities and will not be affected by the decision that determines when forbearance ends. If you have a private student loan and want to see if you could benefit from historically low interest rates, visit Credible to compare multiple private lenders at once.
BIDEN ADMINISTRATION CANCELS $500M OF STUDENT LOAN DEBT: THIS IS WHO QUALIFIES
Why do Senate Democrats want to extend the federal student loan pause until March 2022?
In their letter to Biden, the Democratic senators noted that the responses they received to their letter to servicers indicated several key takeaways, including:
- The student loan freeze has provided much-needed relief to borrowers
- The communication between the majority of federal loan servicers and borrowers has been minimal as they await Education Department guidance
- Servicers will need more time to ensure adequate staffing to support borrowers
- Transitioning borrowers from FedLoan Servicing, which recently announced it would not renew its contract with the Department of Education, to new servicers will require additional time to ensure that borrowers are not negatively impacted
The senators pointed out that most servicers reported little to no contact with their borrowers during the suspension of payments - which could have "devastating" results once it's time to resume payments.
"This failure to contact borrowers could have devastating effects: as one servicer noted, ‘Only when we are able to connect with borrowers are we able to assist them in navigating the myriad of complex repayment options and help them avoid default,’" the letter to Biden states.
While federal student loan borrowers have had their payments paused for the past year, private student loan borrowers have continued to make payments. If you are struggling to make your student loan payment, you could lower the monthly cost by refinancing into a lower interest rate. Visit Credible to get started and get pre-approved in minutes.
But senators aren’t the only ones calling for extensions. One day after Warren and Markey sent their letter to the president, 128 companies sent a letter to Biden, also urging his administration to extend the payment freeze. They did not push an extension to March 2022, but rather until the president delivers on a campaign promise to cancel federal student debt.
"You ran for president on the promise that you would reform the student loan system to ensure that student debt would not be a lifelong burden and that student loan payments would be affordable for those in repayment," the letter states. "It is critical that your administration delivers on these promises made to student loan borrowers and their families before ending the pause in payments and collections."
WILL BIDEN CANCEL STUDENT DEBT WITH AN EXECUTIVE ORDER?
What can private student loan borrowers do in the meantime?
The possible extension of a payment freeze would not apply to private student loan borrowers, since their loans are controlled by private companies and not backed by the government. However, there are still options available to those with private student loans struggling to make their payments, including:
- Forbearance: While private student loan holders don't receive the same benefits as federal student loan holders, many lenders recognize today's challenging times and are offering forbearance options. Although they won't be interest-free, lenders will still freeze payments for those unable to make them due to COVID-19. Private student loan borrowers should contact their loan servicer to discuss their options.
- Deferment: Like forbearance, entering into deferment could allow borrowers to postpone or reduce their loan payments for various reasons, depending on their lender. But unlike forbearance, deferment will not accrue interest while the payments are paused. This option may apply to students attending graduate school, on maternity leave, experiencing economic hardship and more. However, deferment leaves borrowers with the largest repayment amount when the time comes. Because these are not mandated by the federal government, each lender has its own rules on deferment allowances.
- Refinance: Neither forbearance nor deferment should be sought as a long-term remedy for student loans. Refinancing your private student loan in today's low-interest rate environment, however, could considerably reduce your monthly payments and the amount of interest you pay over the life of the loan. Refinancing your student loans is a great permanent solution when interest rates are low to set yourself up for success when it comes to making your monthly payments and paying less over the life of the loan. Refinancing could allow you to consolidate loans, get a better interest rate, change your repayment term and more.
If you hold a private student loan and want to see what options are available to you, contact Credible to speak to a student loan expert and get all of your questions answered.
Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at email@example.com and your question might be answered by Credible in our Money Expert column.