Collections Pause on Defaulted Student Loans Expands to Private Lenders
Written by Steel Rose
The Biden administration expands the pause on student loan interest and collections to the more than a million borrowers who are in default on loans made by private lenders, according to White House press secretary Jen Psaki. Federal student loan payments are set to resume on 10/1021, after an unprecedented 19-month suspension provided financial relief to borrowers during the pandemic. Borrower balances are effectively frozen with no payments required on federal loans since March 2020, when Congress first authorized the pause as part of one of its first major Covid relief packages under the Trump administation. During this time, interest has stopped adding up -- saving the average borrower about $2,000 over the first year -- and collections on defaulted debt have been on hold.
The relief is even more significant for those who work in the public sector and may be eligible for loan forgiveness after 10 years. They are still receiving credit towards those 10 years of required payments as if they had continued to make them during the pandemic, as long as they are still working full time for qualifying employers.
Both the pause on payments and interest waiver is automatic, but only applies to federally held loans. Federal loans cover roughly 85% of all federal student loans, including those known as direct federal loans and PLUS loans that parents have taken out on behalf of their children. It excludes some federal loans that are guaranteed by the government but not technically held by it which were disbursed prior to 2010.
More relief is unlikely. A study from the Committee for a Responsible Federal Budget found that canceling student debt would provide a relatively small boost to the economy and that most of the relief would go to those with higher incomes who tend to have more debt. President Biden has resisted calls for debt cancellation pressure so far, but has said he would support a move by Congress to cancel $10,000 per borrower.