Student loan freeze saves borrowers nearly $200 billion as Biden considers extension


About 37 million federal student loan borrowers have been spared $195 billion in loan repayments since the government froze their payments at the start of the pandemic, and many of them are likely to be struggling with debt when the moratorium will be lifted, according to a report released Tuesday by the Federal Reserve Bank of New York.

Borrowers have not been required to make payments on so-called direct federal student loans, and interest rates on these loans have been set at zero, since Congress passed emergency legislation in March 2020, a break that has since been extended to May 1 and may be extended further.

The bank found borrowers with some type of privately held federal loan, who had their payments not frozen or only briefly frozen by their banks, had a 33% higher delinquency rate on their non-student and non-mortgage debt since late 2020 compared to direct federal borrowers who remained in forbearance.

The authors said they expected federal borrowers whose payments were frozen to have similar difficulties managing their debts when the freeze ends.

“We believe that direct borrowers will likely experience a significant increase in delinquencies, both for student loans and other debt, once forbearance ends,” the New York Fed researchers wrote.

The analysis comes as the Biden administration considers its next steps to manage the approximately $1.6 trillion federal student loan portfolio. The administration is under pressure from many Democrats and congressional supporters who want the freeze extended beyond May 1 for what would be the fourth time under President Biden and the sixth time since it was passed.

Many of those lawmakers, including Senate Majority Leader Chuck Schumer of New York and Massachusetts Sen. Elizabeth Warren, also want the administration to move forward with plans to cancel tens of thousands dollars of debt per borrower, although Mr. Biden has been reluctant to pursue this policy, believing that it would be more appropriate for Congress to resolve the issue of debt cancellation.

Navient’s recent $1.7 billion settlement will erase student debt for approximately 66,000 borrowers. The WSJ’s Josh Mitchell breaks down the settlement and explains which borrowers will get debt relief. Photo: Storyblocks

Washington Sen. Patty Murray (D.), who leads the Senate education panel, specifically pushed for another break next year to give the administration time to come up with a plan to overhaul the education system. payment of student loans, including some debt forgiveness, especially for low-income borrowers, as well as changes to income-based repayment plans and changes to how student debt affects students’ credit scores. consumers.

Top Republicans oppose another extension, and earlier this month two GOP representatives introduced a bill to prevent another break, though it is unlikely to gain traction in the House of Representatives. controlled by Democrats.

There are signs that the Ministry of Education is preparing for a possible extension of the moratorium. Earlier in March, the Department of Education told companies that administer student loans on behalf of the federal government to refrain from telling borrowers that loan repayments would resume soon, according to people familiar with the matter. which has been interpreted by many observers as a precursor to another expansion. Politico first reported that the department did.

“The department will continue to communicate directly with borrowers about federal student loan repayments by providing clear and timely updates,” an Education Department spokesperson said.


Should the student loan repayment freeze be extended again? Why or why not? Join the conversation below.

Speaking on a podcast in early March, Mr Biden’s chief of staff, Ron Klain, said the president would make a decision on the use of executive authority for debt cancellation “before the expiration of the break, or he will extend the break”.

More than 40 million people owe about $1.6 trillion in federal student debt, more than credit card or car debt. Federal loans account for over 90% of outstanding student debt. Borrowers with private loans are not eligible for the suspension of payments, although some lenders and managers have offered flexibility to borrowers who have requested to suspend payments.

Jesse Wilburn, a 27-year-old electrical engineer in Philadelphia, said while his $30,000 student debt is relatively manageable, he plans to waive payments in solidarity with those who cannot repay their loans if payments freeze. ends in May.

“I try to empathize with people whose lives are basically on pause until they can get rid of this debt,” he said. Before the pandemic, he was paying about $300 a month to stay current on his loans.

The pause in student loan payments lasted longer than most other economic relief measures instituted early in the pandemic by Congress and the White House, such as banning evictions and increasing unemployment benefits. , both of which expired last year.

Write to Gabriel T. Rubin at [email protected]

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