With the moratorium on repayment, interest and collections for federal student loans extended through Aug. 31, student loan borrowers might be wondering whether they can expect another extension beyond that date.
After all, President Joe Biden has extended the student loan payment moratorium four times since he took office, with the last one described as the "final" extension when it was announced last January.
There's also the matter of loan forgiveness for all student borrowers. Both Democrats and President Biden have floated the idea of at least $10,000 in blanket forgiveness for student loan borrowers, but that hasn't yet gained traction in Congress — Biden's preference — or as an executive order.
Last Friday, things became a bit more clear: White House press secretary Jen Psaki said on the Pod Save America pocdcast that a "decision" will be made on a further extension and possible loan forgiveness before the current student debt payment freeze expires on Aug. 31. Psaki also said that debt cancellation through executive action is "still on the table."
Debt forgiveness faces legal hurdles
While President Biden supports canceling $10,000 in student debt, he has also questioned his legal authority to do so through an executive order. Last year, Biden requested a memo from the Department of Education to determine his authority, but at this time, it's not clear if the memo process is completed or what the findings might be.
But even if Biden is granted authority, that still doesn't mean that student loan forgiveness through executive action is likely to happen, says Leslie Tayne, an attorney that specializes in debt relief at Tayne Law Group.
There are too many legal obstacles in rolling out blanket forgiveness, Tayne says. She predicts the Biden administration will continue to provide targeted relief through existing government debt relief programs, as they have done since taking office.
"If you qualify for a category where you get loan forgiveness, then fabulous, but otherwise prepare to pay the loans," says Tayne. That said, she wouldn't be surprised by another payment freeze extension through the end of the year.
On Tuesday, the Department of Education announced that an additional 40,000 borrowers in the public service loan forgiveness and income-driven repayment programs will have student debt canceled immediately.
This is in addition to previous reforms that resulted in more student loans being forgiven. Last year, the Biden administration expanded eligibility for the public service loan forgiveness program, which discharged about $4.6 billion in loans for public service workers, according to U.S. Department of Education estimates.
Additionally, $415 million in debt has been canceled for former students defrauded by for-profit schools, through a policy known as borrower defense to repayment.
Should you be paying off your loans?
You might want to hold off on making payments while a freeze is still in place, at least until a decision is made on blanket student loan forgiveness, which, according to the Biden administration, will happen before Aug. 31.
That way, you'd avoid making payments on debt that could be canceled later, whatever the chances of that may be.
"If you believe that student loans will be forgiven, then put [those] payments into a high-yield savings account," says Jay Zigmont, a certified financial planner and founder of the financial planning firm Live, Learn, Plan.
By using a savings account, you can still put aside regular payments, as though you were paying off the loan. If forgiveness doesn't happen, you could use those savings to make a lump sum payment against that debt later on.
"The key is to have a plan for your loan that is more than a hope that the government acts," says Zigmont.
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