Federal student loan borrowers have had their payments paused for another six months, the Department of Education announced Friday. The "final extension" of the COVID-19 emergency forbearance period is effective until Jan. 31, 2022, giving borrowers more time to plan for payments to resume so they can avoid delinquency.
With this recent development, progressive Democrats have their sights set on another target: student loan forgiveness. But canceling student loan debt won't be so simple, especially since prominent Democratic lawmakers disagree on how to enact such legislation.
"As our nation’s economy continues to recover from a deep hole, this final extension will give students and borrowers the time they need to plan for restart and ensure a smooth pathway back to repayment."
Keep reading to learn more about student loan forbearance and what's next for student loan forgiveness. Also consider what you should do to prepare your finances for student loan repayment in 2022, including deferment options and private student loan refinancing.
If you decide to refinance your private loans, visit Credible to compare refinance rates without impacting your credit score.
Student loan forgiveness faces hurdles from top lawmakers
As a presidential candidate, Joe Biden campaigned on forgiving up to $10,000 in federal student loan debt per borrower. In the months since his inauguration, progressive Democrats have called on President Biden to cancel student loan debt with an executive order — but the party is split on how to achieve student loan forgiveness.
Senate Majority Leader Chuck Schumer, D-N.Y., recently said that the president can "flick his pen" and "use his existing legal authority" to forgive up to $50,000 worth of student loan debt per borrower. In contrast, House Speaker Nancy Pelosi, D-CA, has said that student loan forgiveness "has to be an act of Congress."
"People think that the President of the United States has the power for debt forgiveness. He does not," Pelosi said at a July 28 press conference. "He can postpone, he can delay, but he does not have that power."
Passing student loan forgiveness legislation through Congress would be challenging because it likely wouldn't gain bipartisan support in the Senate. Canceling student loan debt has been a tough sell for Republican lawmakers, as demonstrated at an Aug. 3 Senate Judiciary hearing.
At the hearing, Sen. Chuck Grassley (R-IA) said that canceling student loan debt "overwhelmingly would benefit the wealthy at the expense of others," adding that "We shouldn’t ask those who didn’t attend college to pick up the tab for those who did."
For now, with the future of student debt forgiveness uncertain, it's important that student loan borrowers begin to prepare their finances for monthly payments to resume.
How to prepare your finances for student loan payments to resume
In anticipation of the federal extension ending in February 2022, there are a few ways borrowers can avoid going into default when student loan payments restart:
- Apply for an additional period of forbearance. The Department of Education offers economic hardship deferment and unemployment deferment, which can pause payments for up to 36 months.
- Enroll in an income-driven repayment plan (IDR). IDR plans limit the amount of your monthly student loan payment to a portion of your gross income.
- Refinance your private student loans. Student loan refinancing is when you take out a new student loan with different terms (and a lower interest rate) to repay your existing student loans.
However, it may be unwise to refinance your federal student loan debt since doing so would make you ineligible for federal student aid relief measures like IDR and zero-interest forbearance. But if you have private student loan debt, it's a good time to refinance to a lower rate.
Student loan refinance rates are near all-time lows, according to data from Credible. See what interest rate you're currently paying on your student loan debt, and see how that compares to the interest rates offered by real private lenders in the table below.
Determine if student loan refinancing is right for you
Student loan refinancing can help you lower your monthly payments, pay off your debt faster and save money on interest over the life of the loan. But it may not be the best option for all borrowers.
It's easy to determine if student loan refinancing can be beneficial for your situation. First, compare your current student loan interest rate with your estimated student loan refinance rates on Credible's online loan marketplace. You can check your rate without impacting your credit score. Then, use a student loan payment calculator to see if refinancing can save you money or lower your payment.
If you're still not sure if refinancing your private student loans is a good move, get in touch with a student loan expert at Credible to discuss your options.
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