What You Need To Know Now About Student Loan Payments

Student loan payments BELatina Latinx
Photo by Suzanne Kreiter/The Boston Globe via Getty Images.

This year’s back-to-school season will be different for many reasons. Not only are we going back to a semi-normal IRL education, but we’re also dealing with the aftermath of the worst public health crisis we’ve seen in over a century.

Part of the collateral of this situation has been the reframing of the economic system, trying to find solutions for a long-going, underlying crisis: inequality. And when it comes to education, nothing is more evident than inequality.

Ever since progressive politicians like Elizabeth Warren proposed student loan cancellation for all students in the U.S., the argument has been a bone of contention. Now, with the collapse of the American Dream façade, the Biden administration has been facing pressure to come as close as possible to Warren’s idea.

According to Forbes, in a “unique example of bipartisan solidarity,” a group of U.S. senators is urging President Biden to cancel student loans for more than 517.000 student loan borrowers who have a total and permanent disability.

However, nothing is written in stone yet.

Student Loans: an economic bubble about to explode

Ever since the first student loan programs by the end of the 1950s, the accumulation of interests in a country where nearly 20 million people attend college each year is nothing but a speculative ballooning debt with rising defaults.

Let’s put it this way: if 12 million students — or 60% of the 20 million — borrow annually to help cover costs, and an average student loan balance is approximately $30.000, there’s enough field for borrowers to get stuck in an uneven distribution of opportunity.

As of 2021, approximately 45 million Americans held student debt, and the student loan debt rose from $480.1 billion (3.5% GDP) in Q1 2006 to $1,683 billion (7.8% GDP) in Q1 2020.

If we add the COVID-19 pandemic to the mix, the prognostics are catastrophic, especially for students of color.

According to The New York Times, “recent black graduates of four-year colleges owe, on average, $7,400 more than their white peers.”

“Four years after graduation, they still owe an average of $53,000, almost twice as much as whites,” the Times explained.

Where does the disparity come from?

The United States Government-backed student loans were first offered in 1958 under the National Defense Education Act (NDEA). They were only available to “select categories of students,” especially those studying engineering, science, or education degrees.

Instead of offering free and equal access to education, as much of Europe does, the U.S. government offered loans to students who could help in the development of sciences in response to the Soviet Union’s launch of the Sputnik satellite and the widespread perception that the United States was falling behind in science and technology in the middle of the Cold War.

Whether the U.S. won the science race or not, students were still left with thousands of dollars of debt.

And in a country where much of college is funded by Pell grants and gifts from donors and alumni, the idea of education as a privilege instead of a right keeps engraining the collective unconscious.

According to an analysis by the Federal Reserve Bank of St. Louis, “the amount of educational loans that students of color are taking out to finance their higher education may be contributing to racial wealth gaps.”

Considering federal financial aid decisions are primarily based on income, not wealth, “existing racial wealth disparities and soaring higher education costs may actually replicate racial wealth disparities across generations by driving racial disparities in student loan debt load and repayment.”

“If today’s black young adults who attended college are the next generation of the black middle class, then they are not very different than their predecessors. They have made significant gains in educational attainment but don’t have the wealth profile to match. This disparity appears to stem from the educational debt acquired to pursue their education. College is an increasingly expensive investment for students and their families, who have had to shoulder a growing share of the college cost burden.”

What is the Biden Administration doing?

After months of private discussions and uncertainty, and after having frozen federal student loan payments during the pandemic, the Biden Administration directed the U.S. Department of Education to extend the student loan relief for an additional six months, until Jan. 31, 2022.

According to TIME, student loan payments have been on hold since the start of the pandemic in March 2020, and before last week’s announcement, payments were set to resume after October 1. However, in a news release, the Education Department said Jan. 31 is the “definitive end date” for this latest extension.

“This will give the Department of Education and borrowers more time and more certainty as they prepare to restart student loan payments,” Biden said in a statement. “It will also ensure a smoother transition that minimizes loan defaults and delinquencies that hurt families and undermine our economic recovery.”

Although many are optimistic and predict the president will continue to use his executive power and legislative agenda to address the student loan crisis, dismantling a whole economic system that relies on the perpetuation of the debt is not easy.

However, Biden’s long-term student loan relief plan could include the following steps:

  1. Partially cancel student loan debt (up to $10.000)
  2. Free undergraduate tuition for students who meet certain requirements.
  3. Make the current income-driven repayment plans for federal student loans “more generous.”
  4. $50,000 in student loan forgiveness in five years under the Public Service Loan Forgiveness (PSLF) program.

What happens after January with student loan payments?

With Biden’s decision of expanding the student loan relief through January 2022, there will be no required federal student loan payments, 0% interest on federal student loans, and no collection of student loans in default this October.

The good news of this decision is that students will have another four months of financial relief, especially in the wake of the Delta variant. This extra time will “also help more than 10 million student loan borrowers who will lose their federal student loan servicer before December 31 get assigned a new one,” Forbes explained.

However, the bad news is that this is the final extension, and student loan borrowers should prepare to start paying student loans again on February 1, 2022.

“At that time, your student loan interest rate will return to its normal, pre-pandemic interest rate,” Forbes concluded. “If you have student loan debt in default at the time, it could be subject to student loan debt collection, including potential garnishment of wages.”

What can you do in the meantime?

According to Next Advisor, this final extension allows students to “take control of your student loan debt.” Instead of waiting and see if Biden will grant widespread student loan forgiveness, you can start by following these recommendations:

  1. Talk to your loan servicer and keep your information up to date.
  2. Review your budget and make a plan for resuming payments.
  3. Consider an Income-Driven Repayment Plan (IDR) since they can lead to lower, more affordable monthly payments.

4. Look into other deferments or forbearance options outside of COVID-19 relief.