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Why you should prepare for student loan payments to resume—even if Biden extends the pause

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US President Joe Biden speaks in Washington, DC, July 6, 2021.
SAUL LOEB | AFP | Getty Images

Since March 27, 2020, federal student loan interest rates have been set to 0% and payments have been paused. The policy is set to expire on Oct. 1, 2021

Economists have warned that ending the pause could lead to negative outcomes such as a spike in missed payments and delinquency (more than 1 in 4 were already in delinquency or default before the pandemic). And legislators such as Senators Elizabeth Warren of Massachusetts and Patty Murray of Washington have urged President Biden to extend the student loan moratorium into 2022.

"The pause on student loan payments has been a lifeline for families in Washington state and across the country, helping so many struggling borrowers to keep a roof over their heads and food on the table," says Murray, chair of the Senate Health, Education, Labor and Pensions Committee in a statement sent to CNBC Make It. "It's clear that borrowers need more time and information in order to navigate resuming repayments, so I'm pushing to extend the pause on payments and ensure that borrowers get the support they need."

More than 120 organizations, including the American Civil Liberties Union, the National Consumer Law Center and the Consumer Federation of America, have also asked the president to extend the pause until the "administration has delivered on the promises you made to student loan borrowers to fix the broken student loan system and cancel federal student debt."

Education Secretary Miguel Cardona has said extending the pause is on the table, giving hope to those who believe an extension is necessary. 

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Higher education expert Mark Kantrowitz says that the most likely scenario is that the pause will be extended through the end of the year and says workers may be stable enough to make payments by then, citing BLS data that indicates the seasonally adjusted unemployment rate for workers with a bachelor's degree or more was just 3.5% in June 2021. 

A low unemployment rate could mean Biden may not be motivated to extend the pause, he argues. 

"An extension of the payment pause and interest waiver assumes that the president does not rescind the Covid-19 national emergency declaration," claims Kantrowitz. "If he rescinds it, the authority to provide a payment pause and interest waiver will end."

Kantrowitz says that "loan servicers should start notifying borrowers about the date their payments resume sometime in August, under the rules established by the CARES Act" and that borrowers "should make sure that the loan servicer has their current contact information."

He also says that borrowers who have their student loan payments set up with autopay may want to confirm their information is up to date. 

"If an extension is granted, then that will help people do what they've been doing or even more — stocking money into that emergency fund or their retirement savings," says Shelly-Ann Eweka, senior director of Financial Planning Strategy at TIAA. "But what I try to tell people is to plan for what you know, today, and make adjustments today so that you can prepare."

She predicts that the pause on federal student loans will end soon. 

"I'm expecting that in the fall, student loan borrowers are going to have to start making repayments of their loans that have been, in essence, suspended because of the pandemic," says Eweka. "I would plan for what you do know now. And whatever sacrifices you're going to make in order to come up with that payment each month, I would say start now."

In the case that the pause on student loan payments is extended, Eweka says borrowers can put those funds towards another financial goal.

"Inevitably, some people are gonna not prepare... which I can totally understand. People get overwhelmed. It's overwhelming because this payment is coming and how you're going to pay for it is stressful and you might say to yourself, 'I'm just not gonna stress myself about it," she says. "But don't wait to prepare because it can help you manage that [stress] and manage what's ahead."

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