The Student Loan Freeze Ends in May: Here’s What It Means for You

May 1, 2022 marks the end of the student loan freeze that was brought on as part of a COVID-19 relief program. As interest accrual and required payments start back up, all federal borrowers need to check in on the status of their loans and prepare a plan. Here’s the backstory on the loan freeze and what you need to know moving forward.

COVID brought many financial challenges, and one particular issue has been paying back student loans. President Biden announced on December 22, 2021 the extension of the student loan pause through May 1, 2022. The Department of Education had previously called the last extension the “final” extension but this extension did not include that language, so everyone has been left wondering when the pause will really end.

What does this mean for borrowers who are trying to make financial plans for how to pay back student loans? It’s difficult to plan when the government has inconsistent messaging on policies that impact your financial well-being. This article examines the relief provided by the student loan freeze, how to prepare for the end of the extension and whether the pause will be extended again.

What relief does the student loan freeze provide?

Currently, the student loan freeze allows borrowers to suspend their loan payments, keeps interest rates at 0%, and has paused collections on student loans.

The following loans are eligible for the freeze:

  • Direct Loans (defaulted and non-defaulted)
  • Federal Family Education Loan (FFEL) Program loans owned by ED (defaulted and non-defaulted)
  • Defaulted FFEL Program loans not owned by ED
  • Federal Perkins Loans owned by ED (defaulted and non-defaulted)
  • Defaulted HEAL loans

So not all student loans are eligible. Private student loans are a major group of loans that do not receive this kind of relief.

By pausing collection activities, past strategies used by the Department of Education to collect loans (e.g.,  withholding tax refunds, garnishing wages, and not distributing social security payments) are not currently allowed.

How did this policy come about?

As mentioned above, in the middle of March 2020, Former President Donald Trump made an announcement that as part of the national emergency declaration for COVID-19, he would freeze pause interest rates on student loans. There was initial confusion about how this policy would work in terms of which loans would be impacted, how long the policy would last and if it would only concern interest rates or if it would apply to other aspects of loans.

Shortly after, further clarification came. Trump’s policy froze interest rates for student loans provided through government agencies. The initial freeze was declared to be temporary but did not have an end date. The policy also took place immediately and did not require action from borrowers.

This new regulation did not impact private loans because the federal government lacked the authority to pause them. The policy also did not impact the sorts of loans being phased out, such as FFEL, where the government guaranteed the loans, but they were distributed by private institutions.

However, Trump’s proclamation proved to be a temporary band-aid at best. The stimulus bill that was passed just weeks after Trump’s first order on student loans sought to add more stability to this matter.  The CARES Act gave the executive branch the authority to stop all of the involuntary collections practices discussed above, it suspended payments for direct loans and FFELs, and it kept the suspension on interest rates. The legislation provided for these measures to last for six months. Then in August 2020, Trump signed an executive action that extended these measures until the end of 2020. As the Trump presidency came to end, Secretary of Education Betsy DeVos then granted an extension through the end of January 31, 2021.

The Biden administration has not been transformative on this matter. Shortly after taking office, Biden extended the Trump administration’s relief on these matters until August 2021. In August, the Biden administration faced pressure from progressive members of the Democratic Party to forgive large amounts of debt, but instead the Biden administration gave an extension through January 31, 2022. The Department of Education specifically described this extension as “final” however the administration recently extended the pause thorugh May 1, 2022.

If you’re having trouble keeping up with the history of these extensions, here’s a brief summary:

  • Trump initiates pause: March 13, 2020
  • Congress codifies pause in CARES Act: March 13, 2020 – September 30, 2020
  • Trump extension #1: October 1, 2020 – December 31, 2020
  • Trump extension #2: January 1, 2021 – January 20, 2021
  • Biden extension #1: January 20, 2021 – September 30, 2021
  • Biden extension #2: October 1, 2021 – January 31, 2022
  • Biden extension #3: February 1, 2022 – May 1, 2022
  • Total Days of pause: 779 (2 years, 1 month and 18 days)

How to prepare for the end of the extension

In general, the extensions shouldn’t have an impact on your long-term debt repayment strategy. Rather than playing a guessing game with the government on when the pause will end, just consider that the pause is providing you a 0% interest rate environment for debt repayment. 

While you may be tempted to divert money away from your student loans given that repaying an interest-free loan is not the most efficient use of money, just remember that the 0% interest rate is temporary and will eventually end, so there’s no harm in paying off the debt if your preference is to live a debt free lifestyle.

What to do if you’re behind on payments

If you are behind on loan payments, look into ways to fix this issue ahead of when penalties resume. Fortunately, there are many different strategies for this. One is “rehabilitation”, which is where you make nine payments within 10 months, with the payment amount equal to 15% of your discretionary income. You can also look into consolidating your loans. Finally, if you have managed to save up enough cash in this period, you should just pay off the balance that you are behind on.

Additionally, you can consider different programs that can make your repayments more manageable. If you have faced a pay cut during COVID-19, there are repayment plans tied to your income. Similarly, there are options that can outright defer payments; most of these programs and policies are geared towards people facing economic hardship.

When considering additional programs concerning loan assistance, if you have switched to a public interest job during the pandemic, you should look into whether you qualify for the Public Service Loan Forgiveness program.

Furthermore, although the federal loan freeze is ending, there are programs available through entities outside the federal government. You should research programs in your state, reach out to your elected officials to see if they know of any programs, and consider raising the issue with your employer.

Finally, refinancing is an option. Currently, interest rates are being offered at record lows from many financial institutions, though you should probably hold off on doing this until the freeze is definitely over.

Steps all borrowers should take

While you are looking into all of these options, it is a good idea to reach out to your loan servicer to see if they are offering any programs and how they are exactly handling the end of student loan freeze. You should also make sure that all of your contact information is up to date, since you will be sent bills again soon and be responsible for paying them.

COVID-19 intensified many everyday challenges, and repaying student loans was an example of this. As society slowly moves towards the next stage of trying to move on from COVID-19, the government is ending programs like the student loan freeze. The termination of these policies will bring new challenges, but through careful planning, you can make the transition seamless.

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Todd Carney is a graduate of Harvard Law School. He holds a Bachelor’s degree in Political Science and Public Communications. He has also worked in digital media in New York City and Washington D.C. The views in his pieces are his alone and do not reflect the views of his employer.

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