Biden extends break on federal student loan payments

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President-elect Joe Biden will extend the nearly year-long hiatus on federal student loan payments on “day one,” the first concrete pledge the new administration has made to tackle the $ 1.6 trillion debt crisis.

Biden’s transition manager David Kamin told reporters on Friday that “alleviating the crushing financial burden of student debt” would be an immediate priority for the new administration as part of its pledge to “move our economy forward. and keep Americans afloat. ” This includes ordering the Education Ministry on “day one” to expand the popular student loan forgiveness program, as well as “expand income-based repayment programs, and fix and expand loan cancellation programs for people in public service.

But how exactly the incoming administration will handle student loan cancellations for other borrowers remains unclear. On call with reporters, the transition official said Biden “supports Congress in immediately forgiving $ 10,000 in federal student loan debt per person in response to the COVID crisis” but did not did not provide specific details or timelines.

Student loan debt has been a looming financial problem since before the pandemic, but job losses and widespread pay cuts linked to the coronavirus, especially among millennials, have exacerbated the problem. Last year, student loan debt hit an all-time high, nearly $ 1.6 trillion among more than 40 million Americans, according to the Federal Reserve Bank of New York. On average, student loan borrowers owe between $ 200 and $ 299 per month, an amount that for many is simply unsustainable; about one in five borrowers are in default, according to the US Department of Education.

Democrats are divided on how to handle the crisis. Originally a fringe idea, the concept of student loan cancellation has gained traction among the more progressive pockets of the party. In the 2020 presidential primaries, Senator Elizabeth Warren of Massachusetts offered to forgive up to $ 50,000 in debt and Independent Senator Bernie Sanders of Vermont called for the cancellation of all student loans. In a more moderate approach, Mr. Biden expressed support for congressional legislation that would write off $ 10,000 per borrower.

Whatever the specifics of Mr Biden’s plan, the approach is likely to be a turnaround from the position of the current administration. In a letter early last week, former Secretary of the US Department of Education Betsy DeVos urged Congress to “reject” calls for the cancellation of student loan debt, calling the policy proposals “misguided” and “unfair to most Americans.”

As of March, all federal student loan payments have been suspended as part of the federal government’s COVID-19 response. An extension of the grace period was included in the early drafts of the December stimulus package, but was removed in final negotiations. Student loan repayments are expected to resume at the end of this month. The transition team have not indicated how long a new overtime could last.

A Bench study report found that nearly 6 in 10 borrowers said it would be “somewhat” or “very difficult” to resume loan payments next month.

When student loan payments resume, the Department of Education does not expect a smooth transition. In his 2020 Annual Report, the ministry said it expects loan managers and the federal government “to face a heavy burden in ‘converting’ millions of borrowers into active repayment.” Some of these borrowers, the report warns, will become delinquent.

Alex Tin contributed to this report.

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