Updated: Jul 21, 2022
Dear Clients & Friends,
About two weeks ago, an announcement was made that the “pause” on federal student loan payments has been extended. I’ve received a few questions about this over the last few days because, with so many changes, pauses, exceptions, exemptions, etc. during the COVID crisis, it’s been difficult for everyone to keep up. So, today, we’ve prepared a brief summary of this announcement.
On August 6, 2021, the U.S. Department of Education announced that it would be extending the pause on federal student loan payments until January 31, 2022. The payment moratorium, currently in effect for millions of federal student loan borrowers, was set to end on September 30, 2021.
The Department noted that this extension would be the last one. U.S. Secretary of Education Miguel Cardona stated: "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."
How many payment pauses have there been?
There have been four pauses on federal student loan repayments since the start of the coronavirus pandemic. The first pause was instituted in March 2020 for six months (through September 2020) when Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The second and third pauses came via presidential executive order and extended the payment pause through January 2021 and through September 2021, respectively. The fourth and "final" extension is now scheduled through January 31, 2022. This means federal student loan payments will resume beginning February 1, 2022.
The Department of Education will begin notifying borrowers about this final extension in the coming days, and it will release resources and information about how to plan for repayment as the end of the pause approaches.
Does interest continue to accrue during the moratorium period?
No, interest does not accrue during the moratorium period. Essentially, the interest rate is set at 0%.
Can borrowers make payments if they want to during this time?
Yes. Borrowers can choose to keep making their monthly student loan payments during the moratorium period if they wish. The full amount of a borrower's payment will be applied to principal. Borrowers can also choose to make partial payments during this time.
Do private student loans qualify for the payment pause?
No, private student loans aren't eligible. Only student loans held by the federal government are eligible. This includes Federal Direct Loans (including PLUS Loans), along with Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans held by the Department of Education.
Is student loan forgiveness likely when the payment pause ends?
Probably not. While some legislators have gone on record in favor of forgiving a certain amount of federal student loan debt per borrower, the Biden administration has not taken any steps in this direction and has given no indication that it will do so. Borrowers should be ready to start repaying their loans when the pause ends on January 31, 2022. In the case of continued financial hardship at that time, borrowers should contact their loan servicer to inquire about requesting an individual deferment or forbearance.
The pause is good. The mountain of student loan debt in America is not. Perhaps in another article we can discuss the practicalities of unaffordable higher education in our country. But we’ll save that for another day.
Since we are an investment institution talking about education, I recall a great quote from one of my favorite historical figures (who also happens to share my birthday): “An investment in knowledge pays the best dividends.” – Ben Franklin
As with any of our articles, if you feel like this has been informative or if you feel that it would help someone that you know, feel free to pass it along. Have a lovely weekend.
Matthew Ramer, AIF®
Principal, Financial Advisor
MOR Wealth Management, LLC
1801 Market Street, Suite 2435
Philadelphia, PA 19103
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