Student loans: Biden extends payment pause through August 31

The Biden administration will officially enact another extension of the pandemic payment pause related to federally-backed student loans through the end of August.

In a statement, President Biden stated that "my Administration is extending the pause on federal student loan repayments through August 31st, 2022. That additional time will assist borrowers in achieving greater financial security and support the Department of Education’s efforts to continue improving student loan programs. As part of this transition, the Department of Education will offer additional flexibilities and support for all borrowers."

The pause was set to expire after May 1 after being enacted by former President Donald Trump amid the coronavirus pandemicin March 2020 and extended multiple times by President Biden.

“The Department of Education is committed to ensuring that student loan borrowers have a smooth transition back to repayment," Secretary of Education Miguel Cardona said in the press release.

“This additional extension will allow borrowers to gain more financial security as the economy continues to improve and as the nation continues to recover from the COVID-19 pandemic," Cardona added. "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."

Democrats, meanwhile, are urging the president to do more.

"The payment pause has been a significant federal investment throughout the pandemic, providing essential relief to millions of families during the economic and public health crisis and saving them an average of $393 per month," a recent letter from prominent Democrats stated, later adding that most borrowers "are not financially prepared to shoulder another bill as they face skyrocketing costs for necessities like food and gas."

On Wednesday morning, the lawmakers added that though the pause extension was "welcome," the action "underscores the importance of swift executive action on meaningful student debt cancellation" and added that the group will "continue to implore the President to use his clear legal authority to cancel student debt, which will help narrow the racial wealth gap, boost our economic recovery, and demonstrate that this government is fighting for the people.”

An estimated 37 million borrowers have not had to pay on their loans during the pause, and no new interest has accrued.

Biden's statement noted that the New York Fed recently found that the payment pause has led to "an estimated $195 billion worth of waived payments through April 2022." Another roughly 10 million borrowers who hold private or Family Federal Education Loan (FFEL) loans owned by commercial banks did not benefit from the payment pause.

"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 president stated.

Forgiveness still an open question

It's unclear how exactly the administration is approaching the forgiveness question. In December 2020, then-President-elect Biden described cancelling student debt through executive power as "pretty questionable." An Education Department legal analysis related to broad-based cancellation was published on April 5, 2021, in a heavily redacted form.

White House Chief of Staff Ron Klain recently said that President Biden "is going to look at what we should do on student debt before the pause expires, or he’ll extend the pause."

Biden backed broad student loan forgiveness of $10,000 on the campaign trail in 2020 amid more generous proposals from then-rivals Sen. Bernie Sanders (D-VT) and Elizabeth Warren (D-MA). An erasure of $10,000 for all borrowers with federally-backed loans would cost roughly $371 billion and erase the loans of about a third of borrowers.

Aarthi is a reporter for Yahoo Finance. She can be reached at [email protected] Follow her on Twitter @aarthiswami.

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