Federal student loan borrowers just got another big break from the Biden administration.
In addition to cancelling $10,000 to $20,000 in student loan debt for millions of borrowers, President Joe Biden announced Wednesday that the Education Department will extend the freeze on loan payments and waive interest and collections through Dec. 31, 2022. Borrowers on an income-driven repayment plan will also get a break when payments resume (more on that below).
Payments on student loans had previously been scheduled to resume on Sept. 1. Only borrowers with federally held loans — not private borrowers — are eligible for the payment pause. Still, the vast majority of borrowers with student loan debt are affected: Nearly 40 million people have not been required to make payments since the forbearance program began in March 2020.
This is the seventh time the government has extended the forbearance that it enacted in the early days of the coronavirus pandemic. The Education Department will start carrying out the process of loan forgiveness while payments remain paused.
The delay in announcing the extension (just eight days before payments were set to resume) caused some confusion for borrowers and loan servicers alike.
If you do receive a message from your loan servicer in the next week or so that says payments are still resuming in September, that’s a mistake. Earlier this week, federal student loan servicers warned the government that announcing the extension could cause some implementation issues, including miscommunication with borrowers.
Will the student loan payment pause be extended again?
No. The Dec. 31 payment pause extension will be the last, the Biden administration said.
What will happen to student loan payments next year?
Under new student loan rules proposed Wednesday, borrowers on income-driven repayment plans (which are based on how much you earn, not how much you owe) could be able to reduce the size of their payments.
The proposed rule calls for capping monthly payments on undergraduate loans at 5% of income rather than the current rate of 10%. Borrowers with both undergraduate and graduate student loans would pay a weighted average rate, the Education Department said.
The criteria for loan forgiveness under these plans would be expanded under the proposed rules, too: If you have an original loan balance of $12,000 or less, your balance would be forgiven after 10 years of payments rather than the 20 years of payments that many income-based repayment plans currently require.
Right now, many borrowers in income-driven plans see their balances grow each month, because they owe less than the monthly interest. The Education Department said its new rules fix that by fully covering unpaid monthly interest for borrowers on income-driven repayment plans.
It's possible that these proposed new rules could change, and it's not clear when they would take effect. If you’re one of the 9 million borrowers currently in an income-driven repayment plan, it’s important to keep in mind that the loan forgiveness announced today will not change your monthly payments.
For borrowers not enrolled in an income-driven plan who meet the requirements for student loan forgiveness — including income of $125,000 or less per year for individuals or $250,000 or less for married couples filing jointly — your future monthly payments will likely get smaller because your loan balance will shrink. How much smaller your payments will be depends on the size of the balance and length of your repayment term.