Millions of people in the United States behind on student loan payments will get a fresh start, according to the White House.
On April 6, President Joe Biden’s administration announced an extension of the pause on student loan payments until Aug. 31, 2022. The extension will allow additional time for students to plan for the resumption of payments, the U.S. Department of Education says.
The pause will also allow students to get a “fresh start” on repayment by “eliminating the impact of delinquency and default and allowing them to re-enter repayment in good standing,” the agency said in a news release.
Here’s what that means.
About 41 million people in the U.S. have student loans and about 8 million are in default, Politico reported.
The agency will automatically erase “the defaults of all borrowers covered by the pandemic-related pause. That includes borrowers who owe federal student loans that are directly held by the Education Department as well as borrowers who defaulted on federally guaranteed student loans made by private lenders,” Politico reported.
“It’s important to pay the amount shown on your bill — and to pay by the due date,” according to the Federal Student Aid office.
As soon as the first day after a student loan payment is missed, a loan becomes past due — or delinquent. If a loan remains delinquent for 90 days or more, “your loan servicer will report the delinquency to the three major national credit bureaus,” the office says on its website.
If the loan continues to be delinquent, it will go into default.
When a loan is in default, the consequences can hurt students’ financial futures.
Here are a few things that can happen when an account becomes in default:
— The entire unpaid balance of the loan and interests owed could become immediately due.
— Borrowers could lose eligibility for other federal student aid.
— Students’ credit ratings will be damaged, hurting their ability to purchase a car or a house.
— Employers could withhold pay to send it to loan holders.
In an April 6 statement, President Joe Biden said he hoped the pause would allow “Americans to continue to get back on their feet after two of the hardest years this nation has ever faced.”
He added that if payments had resumed as scheduled in May, “millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability.”
In an April 6 briefing, Press Secretary Jen Psaki said that Biden had not “ruled out” a wide scale cancellation of student debt.
