Student loan break and debt forgiveness: what you need to know

April 6, President Joe Biden announced that his administration would extend the student loan repayment pause until August 31, 2022, allowing borrowers to delay repayments for several additional months.

Many Congressional Democrats publicly called on Biden to go further and undo a big chunk student debt for most borrowers.

Ashley texted to ask, “Could VERIFY shed some light on all the student loans and those breaks that keep happening? Any idea when Biden will implement the $10,000 loan forgiveness?

We break down what to know about the current student loan pause and proposals from Biden and congressional Democrats to cancel student debt.

• The student loan suspension began in March 2020 and suspended all payments due for federal student loans, stopped accrual of interest on these loans, and suspended involuntary collections to pay these loans. The Secretary of Education, who is appointed by and reports to the President, has the power to extend the break.

• The break does not apply to private student loans. Private loans constitute 8.4% of outstanding student debt in the United States

• President Biden has insisted that any widespread student loan forgiveness go through Congress, though some congressional Democrats are urging him to take action by executive order.

• Biden pledged to forgive $10,000 in student loans for each borrower during the campaign trail, and some congressional Democrats are offering to forgive $50,000 for each student, but nothing has happened yet.

• The Biden administration has written off $16 billion in student debt for 680,000 borrowers since he took office using programs that were already in place before his presidency began.

When did the student loan suspension start and what does it do?

The pause on student loan bills began in March 2020 with the passing of the CARES Act, the first of the federal government’s COVID stimulus bills to become law. Part of the bill was dedicated to temporary relief for federal student loan borrowers.

He demanded that the Education Secretary suspend all payments due for student loans held by the Department for Education, stop the accrual of interest on all suspended loans and suspend involuntary collections to pay student loans. . The CARES Act also stipulated that each month in which loans are suspended would be treated by loan forgiveness or rehabilitation programs, such as the Civil Service Loan Forgiveness Program, as a month in which the borrower made a payment.

In practice, most borrowers have no monthly payments due when they check their federal student loan officer’s account. Borrowers always have the option to make payments on their loans during the break, and may even choose to return to monthly bills.

What happens when the break ends?

The CARES Act states that before the break ends, the Education Secretary must notify borrowers that their payments will resume and allow them to enroll in income-based repayment plans.

Unless changes are made to loan terms, when the pause ends, borrower loan repayments will resume as they were before March 2020.

Biden announced that his administration would extend the pause until August 31, 2022, but that the White House could continue to extend the pause beyond that date if it so chooses.

The CARES Act directs the secretary of education, who is appointed by and reports to the president, to take the break without congressional input. The pause, which the CARES Act was originally scheduled to end on October 1, 2020, was first extended until the end of 2020 by former President Donald Trump, then extended by Trump again until January 31, 2021. When Biden first took office in January 2021, the acting education secretary issued another extension “at the request of President Biden.” Biden has extended it several times since then.

And private borrowers?

the Department of Education describes private student loans as all non-federal student loans, which includes loans from lenders such as banks, credit unions, government agencies, or schools. According to Education Data Initiativeprivate loans make up 8.4% of outstanding student debt.

The terms and conditions of private student loans are set by the private lender, not the federal government. Therefore, the federal student loan suspension never applied to private student loans.

the National Consumer Law Center indicates that the pause will continue to apply only to federal student loans currently held by the Department of Education, as well as all federal family education loans (FFEL) in default.

Does the government have the power to cancel student debt?

The federal government can choose to forgive federal student loan debt, but not private student loan debt. This is because federal student loans are funded by the government under terms set by law, while private student loans are funded by outside entities that set their own terms.

the Secretary of Education is granted by statute, the power to “suspend or terminate the collection of any debt in any amount” so long as the debt is for qualifying loans owned and operated by the federal government.

Each year, Congress grants the Department of Education a budget for the administration of student loans, based on department budget request. The Department of Education uses this money to issue new student loans, and borrower repayments are accepted by the ministry as government revenue.

What are the proposals to cancel student debt?

The two most-discussed student debt forgiveness proposals would erase either $10,000 or $50,000 of federal student debt per borrower.

Biden has previously said he supports the $10,000 proposal, and committed to following the plan during his presidential campaign. But since taking office, Biden has constantly insisted that a proposal would have to pass Congress first — a challenge given his party’s narrow margins in the House and Senate.

Some Democrats in the House and Senate support a plan to forgive up to $50,000 in debt per borrower and are urging Biden to accomplish it by executive order. Senator Elizabeth Warren argued that Congress has already given Biden the power to do so through the Secretary of Education’s authority to “compromise, waive, or release any right, title, claim, lien, or demand, whatever acquisition, including any equity or redemption rights” as granted by the Higher Education Act.

Proponents of widespread student debt cancellation say it will help the economy by freeing up paychecks for millions of Americans, while those who oppose student debt cancellation say it moves the cost of lending to taxpayers.

Legislation proposed during this session of Congress has stalled. White House Press Secretary Jen Psaki said at a press briefing on April 6 that Biden had not “ruled out” canceling student debt by executive order.

What has already been done?

The Biden administration has focused on canceling debt for certain types of borrowers by modifying pre-existing programs. His administration canceled loans for borrowers in total and permanent disability and borrowers who have been hurt or lied by their schools.

In February, the The Ministry of Education has announced the Biden administration had repaid $16 billion in loans to 680,000 borrowers since Biden’s term began. the Education Data Initiative says 43.4 million Americans still owe $1.6 trillion in federal student debt.

Since the Biden administration repaid $16 billion of $1.6 trillion in federal student loans nationwide, it has erased about 1% of total federal student debt in the United States.

More CHECK: Yes, the ‘median American’ has $0 in federal student loan debt