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President Joe Biden has once again extended the pause on federal student loan payments, this time through August 31.
It is the sixth extension since the start of the COVID-19 pandemic, and comes a few weeks before payments were scheduled to restart on May 1, affecting millions of borrowers who have not had to make payments.
“We saw this extension coming and I think it also leaves the door open for another extension,” says Robert Farrington, founder and CEO of The College Investor. “Today’s announcement made it clear that Biden is using his powers under the HEROES Act, which requires that there be a national emergency. As such, as long as there is a national emergency, he can continue to extend it.”
A critical part of the announcement includes a plan to remove delinquent and default status from all borrowers, effectively giving them a “fresh start” when they enter repayment. According to Farrington, it’s a big win for borrowers who may have struggled with payments before the pandemic or had their tax refunds garnished.
“With this change, it will help many borrowers get back on track when payments start,” he says.
The Biden administration said it is extending the pause primarily because Americans are “still reeling from the pandemic and the unprecedented economic disruption it caused.” If loan payments were to resume on May 1, analysis of recent Federal Reserve data suggests that millions of student loan borrowers would struggle to get into repayment, according to a White House statement.
Still, a question mark remains surrounding widespread student loan forgiveness. Biden has barely mentioned it since the beginning of the year, inspiring new concerns from advocates and borrowers that he is going back on one of his key campaign promises. At the start of the 2020 presidential campaign, Biden had repeatedly said that he supported the idea of writing off $10,000 per borrower. However, the experts we spoke to in late 2021 largely agree that borrowers shouldn’t count on that and instead focus on ways they can take control of their student debt right now.
What does this extension mean for borrowers?
While this latest extension is a significant step forward for student loan borrowers, it shouldn’t change the way you approach your student loan debt right now.
Instead, stay the course. If you’ve been using this break to prioritize other aspects of your finances, keep doing it. In general, experts recommend using these extra months to help divert some money toward building an emergency fund or paying off more pressing high-interest debt, like credit cards or private student loans.
If you think you’re in good financial shape and want to get ahead of your student loan debt, Farrington recommends setting aside money in a savings account and making a lump sum payment just before payments start up again.
Regardless, now is a good time to start planning when payments finally resume. For example, make sure your personal information in your accounts is up to date, such as your address, phone number, and email address, so you can stay on top of any new information about your loans.
You should also know how much you owe, double-check your loan payment dates and grace periods, and review your repayment strategy to see if it aligns with your current financial situation. Lastly, start budgeting for the future now for when payments resume. Take into account any changes in your income and see if you need to cut spending in certain areas to make room in your budget for upcoming student loan payments.
As of now, federal student loan payments are set to resume at the end of August, so experts say you shouldn’t set your strategy based on the perceived likelihood that more student loan relief is coming. But it is something to watch out for in the coming months.