As things stand, the pandemic-induced freeze on federal student loans will end on September 30.
Many Americans aren’t ready to face their student loans for the first time since March 13, 2020. October 1 means not only the return of interest charges and monthly payments, but also collections of delinquent student loans.
President Joe Biden is being pushed to extend the payment holiday beyond the end of September. That would give borrowers more time to prepare, and pay off other debts — and it would give Democrats extra time to pressure Biden for wider relief.
Many members of the president’s party still want him to brush off $50,000 in student debt for every borrower, though there is fresh disagreement about how far he could go.
Borrowers expect financial pain in October
For student loan borrowers, Halloween won’t be the scariest day in October this year. A new survey shows that many fear October 1 and the end of the long student loan vacation that has already been extended three times.
More than 4 in 10 borrowers (41%) say they will “barely make ends meet” when the freeze ends and will have to cut spending to make ends meet, US News & World Report found. About a quarter (23%) say they can’t resume their payments without finding a new source of income.
About a quarter of borrowers report paying back $10,000 or less, but 30% say they owe more than $30,000, and 11% say they’re paying off student loans of more than $50,000, according to the U.S. News survey.
The financial burden is preventing double-digit percentages of borrowers from getting married or buying homes at current prices historically low mortgage interest.
Democrats urge payments to be suspended
Those who pray for a longer hiatus from paying student loans and interest have some powerful allies in their corner.
In June, 64 Democrats in Congress, including Senate Leader Chuck Schumer and Senator Elizabeth Warren, urged President Biden in a letter to extend the moratorium until March 31, 2022 — or a time when employment returns to pre-pandemic levels. . .
The unemployment rate in the US remains high: it was 5.9% in June, compared to 3.5% in February 2020.
“The planned resumption of student loan payments in October could put a significant drag on our economic recovery,” lawmakers wrote. So far, the Biden administration had taken no steps to extend the payment pause.
$50,000 in debt forgiveness is still up in the air
On Tuesday, Warren, Schumer and Democratic Rep. Ayanna Pressley of Massachusetts held a press conference to push for a longer payment freeze — and to again urge the president to forgive $50,000 in federal student debt per borrower by through executive measures.
“President Biden just needs to tap his pen and sign it,” Schumer said.
But now House Speaker Nancy Pelosi is disputing that idea. “People think the president of the United States has the power to cancel debt, he doesn’t,” Pelosi said at a news conference on Wednesday. “He can defer, he can defer, but he doesn’t have that power. That has to be an act of Congress.”
Biden’s education secretary has been studying the president’s ability to waive student loans for months, but that assessment has turned up nothing. But Biden has indicated that he’s more comfortable with the idea of clearing $10,000 in student debt per person, not $50,000.
Manage student debt in the meantime
For now, don’t hold your breath for major student loan forgiveness — because who knows if and when it will happen? So if you know you’re struggling with student loans after the pay holiday, take steps now to ease that burden.
Look in first refinance your student loans. Interest rates on student loan refinancing from private lenders have hit record lows, so replacing your debt with a new private student loan can lower your monthly payments.
If federal loan forgiveness ever comes, it wouldn’t extend to private refi loans.
If you’re a homeowner, you’ll also want to consider refinancing your mortgage, if you haven’t done so in the past year. With the 30-year interest rate back well below 3%, millions of mortgage holders could be save almost $300 month by taking out a new one, mortgage technology and data provider Black Knight recently said:
The best rates go to borrowers with the highest credit scores. Nowadays it is easy to check your credit score for free, to see if yours needs improvement.
Another way to give yourself some financial breathing room is to earn a little more income by investing with low stakes in the stock market. One popular app helps you build a diversified portfolio by simply investing “change” of everyday purchases.