The Pause on Student Loan Payments Has Been Extended Again: What Will Happen When These Pauses End?

For the past two years, the immense burden of loan payments has been lifted for students and they’ve been able to focus on other needs, savings, and the unexpected trials the pandemic laid before them. The United States government first placed a hold on federal student loan payments in March of 2020 in response to the growing severity of the COVID-19 pandemic. The pause was meant to last just six months, but the unpredictability of the virus caused both the Trump and Biden presidential administrations to together extend the pause 5 times.

Now, the forbearance period has been extended a sixth time. The last extension would have forced students to repay their loans starting on May 1, 2022. Now, students have until August 31, 2022 to refrain from payments.

This hold has been life changing for many students, especially in these precarious times. However, it’s also left many concerned about what their financial position will look like when the pause ends definitively. Although many have had improved financial health during this period, the sudden reinstitution of large loan payments may bring them back to exactly where they started.

The Advantages

Without hundreds of dollars in student loans to worry about each month, many students have reported their credit scores have increased (on average almost 30 points) according to the California Policy Lab and reports by the Student Loan Law Initiative. Further, students were able to reduce how often they used their credit cards by about 23%.

Most people who have student loan payments also have other loans such as car payments, credit card loans, or home mortgages. The pause on student loan payments didn’t eliminate these other financial obligations of course, but it did provide welcome relief for one of the financial burdens causing stress and anxiety. As COVID-19 already was sparking stress, anxiety, and uncertainty, having one thing off of your plate was incredibly helpful for many.

Additionally, for those who have been able to continue making payments despite the ability to pause if needed, all of their payments have gone toward principal. This is huge because high interest rates are one of the greatest reasons that loans can take so long to pay back. It can feel like a never-ending battle as you pour money into a fund that only seems to grow.

The Concern

It’s easy to get used to a new positive financial position. When you get a new job with a higher salary, it's common to quickly become used to having more financial freedom, splurging more, saving more, and feeling more comfortable. When a negative change occurs, such as a recession, an unexpected pandemic, or a new loan, it’s more difficult to adjust.

Considering that inflation is rising dramatically, many are concerned that the student loan payments being reinstated will cause a higher financial strain than they did prior to the pandemic.

Further, the condition of student loan payments has never been great. Even before 2020, many were behind on payments, unable to save or invest due to loans, and under high stress due to their high interest rates. Students face a dilemma over whether to invest in their education or other priorities.

According to the Education Data Initiative, 43.4 million people in the U.S. are currently facing student loan debt and the average federal student loan balance is $37,113. This doesn’t include the private student loans many people have in addition, averaging around $40,904. Every single year student loan debt has increased, ranging from 2.72% all the way up to 12.2%. As colleges become morpplicants are forced to take out loans if they are determined to get a college degree and as college degrees become more commonplace, more individuals feel as though they’re necessary for a successful career. Between 39-50% of students with debt now have debt from both undergraduate and graduate institutions.

Further, just 8% of those with student loan debt are still in school. This means that most payers are working adults, still facing looming payments. Additionally, 81% of adults who hold debt for student loans are now taking out loans for their own children to attend school. The never-ending cycle continues throughout generations.

The Future

Talk of canceling student loans is still ongoing, but the reality is, that is not the current reality. For now, students are forced to think about how they will handle the lift of the payment pause in August of 2022.

Although there’s a chance the period of forbearance could be extended again, students must face the reality of their financial position if this doesn’t occur.

One thing is for certain, the pauses on student loan payments during the pandemic has brought renewed focus and conversation on the state of student loans in the United States. Debate has reignited what can be done to improve how we finance education, allowing future generations to thrive academically without plummeting financially.

Something which has already come to fruition thanks to this renewed debate is a promise from the U.S. Department of Education to help those who are affected by the income-driven repayment (IDR) plans. These plans have been met with large amounts of controversy over the past few years despite how positive they seem. The promise of remedy will begin with an immediate cancellation of debt for those who qualify for Public Service Loan Forgiveness (around 40,000 borrowers).