The Biden administration announced Wednesday that it is again extending the moratorium on federal student loan payments, interest and collections, this time until summer's end, Aug. 31. The U.S. Department of Education also unveiled a plan to reset the roughly 7 million borrowers who are in default, using the pandemic pause to restore their accounts to good standing.
"We are still recovering from the pandemic and the unprecedented economic disruption it caused," said President Biden in a statement announcing the extension. "If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggests that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans' financial stability."
The loan repayment freeze began in March 2020, at the beginning of the pandemic, and will now last at least two and a half years – an unprecedented respite in the financial lives of tens of millions of borrowers. According to the latest department data, 500,000 federal student loan borrowers – out of more than 43 million – have been repaying their loans during the pause.
This is the seventh time the moratorium has been extended by the Trump and Biden administrations, according to the Education Department's Office of Federal Student Aid. The latest extension comes after reports of a department email to loan servicers telling them not to communicate with borrowers about the previous repayment deadline, May 1.
In an interview that aired on NPR's All Things Considered Wednesday, Education Secretary Miguel Cardona spoke about the Biden Administration's announcement.
"We know so many of our borrowers have fallen on hard times, even before the pandemic. They maybe had delinquent payments or they'd have to default on their loans. And what we want to do is make sure they have a fresh start. We want to make sure that their loans are put in good standing again," Cardono told NPR.
The extension, while expected, comes with at least one surprise: It's shorter than many Democrats had hoped for.
Sen. Patty Murray (D-Wash.), chair of the Senate's education committee, tweeted earlier this week that the payment pause "has got to be extended until at least 2023. With rising costs and still building back from the pandemic, this is not the time to make borrowers start paying again."
News of the extension through August also drew a tepid response from borrower advocates.
"The Biden Administration should absolutely extend the payment pause," Abby Shafroth of the National Consumer Law Center said in a statement. "But the pause is a temporary measure that should be in service of a longer-term fix, or borrowers may be back in the same crunch four months from now."
This shorter extension also puts Biden in the precarious political position of asking millions of voters to resume loan payments on the eve of November's midterm elections – unless he does what many experts expect him to do and simply issues another extension over the summer.
"The @WhiteHouse should just be honest about what they're doing and announce they'll turn the loan portfolio on after Election Day," tweeted Trump's former education secretary, Betsy DeVos.
The extension is deeply unpopular with Biden's Republican critics, who have pointed out that the pause on interest and payments has cost the federal government at least $95 billion.
In March, when NPR reported this extension was likely, the top Republican on the House education committee, Rep. Virginia Foxx of North Carolina, responded: "Another repayment freeze only begets unfairness that is inevitably leveled at both taxpayers and responsible borrowers alike."
Borrowers in default are getting a fresh start
Perhaps the biggest news of today's announcement wasn't the extension itself, which was the worst-kept secret in Washington for weeks, but this vague line from the Education Department's press release:
"The Department will continue to assess the financial impacts of the pandemic on student loan borrowers and to prepare to transition borrowers smoothly back into repayment. This includes allowing all borrowers with paused loans to receive a 'fresh start' on repayment by eliminating the impact of delinquency and default and allowing them to reenter repayment in good standing."
This is big news for the roughly 7 million borrowers whose federal student loans are currently in default, many of whom had wages garnished and Social Security benefits withheld before the pandemic. When the pause eventually ends, those collections will not resume and these borrowers will be restored to good standing.
Normally, to exit default, the Education Department requires that borrowers coordinate with a default-focused loan servicing company and make nine "reasonable and affordable monthly payments... within 20 days of the due date" – and make them over the course of 10 consecutive months. With this restart, however, the Biden administration is using its pandemic authority and the ongoing repayment pause to waive this rehabilitation process.
"During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs," Education Secretary Miguel Cardona said in a statement.
It is unclear if borrowers will also have their access to federal student aid restored, meaning they can potentially take out new student loans – something borrowers in default cannot do. Nearly half of all defaulters have never finished college, and losing access to federal financial aid can make it especially challenging to go back and finish a degree.
"For too long, defaulted borrowers have slipped through the cracks and been made to suffer at the hands of the Department of Education's punitive collection system," said Persis Yu of the Student Borrower Protection Center in a statement. "We applaud the Biden Administration's decision to pull millions of borrowers out of default and to give them a fresh start."
Getting the word out to defaulted borrowers won't be easy
The most difficult part of the department's fresh start for borrowers in default will be finding them. According to a January report from the Government Accountability Office (GAO), "the contractor managing borrowers' defaulted loans initially did not have valid email addresses for about half of the borrowers in default."
The GAO reported that the Education Department was able to provide some of the missing contacts but that addresses are still missing for about 1 in 4 defaulted borrowers.
According to the report, "Education is planning to reach these borrowers by using other outreach channels to share messages about rehabilitation options," including through social media.
No mention of student loan cancellation
News of this latest extension received mixed reviews from borrower advocates not only because it's shorter than many expected but because Biden continued his silence on the possibility of broader student loan cancellation.
On the campaign trail, Biden pledged to cancel at least $10,000 per borrower. The longer he waits to fulfill that pledge – or clearly abandon it – the more pressure he takes from fellow Democrats.
"I think some folks read these extensions as savvy politics," Rep. Alexandria Ocasio-Cortez tweeted on Tuesday, "but I don't think those folks understand the panic and disorder it causes people to get so close to these deadlines just to extend the uncertainty. It doesn't have the affect people think it does. We should cancel them."
Even Yu, who supports the move to help defaulted borrowers, says "the Department must not squander this opportunity to fix the broken student loan system. Under this new swift deadline, the Department must work fast to end its punitive collection practices, ensure meaningful pathways for borrowers to get out of debt, and provide widespread debt cancellation."
It is possible the Biden administration is still exploring options to cancel some level of student debt. It's also possible the administration has no plans for debt cancellation but is reluctant to make that clear ahead of the hotly contested midterms.
The clearest, most recent indication of Biden's intentions came last month when White House Chief of Staff Ron Klain said, "The president is going to look at what we should do on student debt before the pause expires, or he'll extend the pause."
And extend the pause, he did.
Elissa Nadworny contributed to this report.
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