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Student Loan Sidebar – Christie Arkovich

by Christie Arkovich

On January 20, 2021, President Biden signed an executive order extending pandemic- related student loan relief to September 30, 2021. That relief was originally set to expire on January 31, 2021.

Here’s what you need to know:
• All payments, interest, and collections on government-held federal student loans will continue to be suspended through September 30, 2021.

• The relief only applies to government- held student loans — not commercially- held FFEL loans, Perkins loans, or private student loans.

• The U.S. Department of Education confirmed that the months of suspended student loan payments will continue to count towards loan rehabilitation and loan forgiveness programs, including Public Service Loan Forgiveness, for those who are otherwise meeting all eligibility criteria.

• President Biden suggested that the moratorium could be extended further, although a decision on that would be unlikely until much closer

to September 30, and will likely depend on economic and pandemic conditions at that time.

• Additional student loan relief measures have, so far, not been included in new federal stimulus proposals. That could change as work on a new stimulus package continues in Congress. In addition, lawmakers could introduce new student loan reform measures through separate legislation, a prospect that the Biden administration has suggested.

My thoughts are that support for a Congressionally approved $10,000 across-the-board forgiveness for federal Direct Loans is quite high. This would zero out approximately a third of federal borrowers with one fell swoop. This would result in approximately $429 billion of student debt being cancelled. Up to thirty percent of those owing $10,000 or less are delinquent or in default – drastically hurting their credit scores and cost of credit elsewhere. These are also the borrowers most likely to default on their loans. Over half of those who default have less than $10,000 of federal undergraduate debt according to an analysis of federal data by The Institute for College Access and Success. It would also help to decrease the balances of other federal student loans if done across the board.

I would also really like to see an across-the- board interest rate reduction to 3%. This would help everyone, and in particular, help those with larger balances. The average for federal loans is 6.8% which is quite high nowadays and it is up to an astonishing 8.5% for graduate student loans. Most people who reach out to us for help are fighting the rising tide of interest and getting nowhere. A cut to 3% would be fair and help everyone with federal student loans. Even if it were 3%, and 4.5% for Grad and Parent Plus loans, that would be far better than the national average is now.

That and fixing the Public Service Loan Forgiveness Program by at least assuring that those with the older federal FFEL loans are eligible for forgiveness would fairly and easily address most of the inequities in the current system.

What is the best advice you can give someone with federal student loans right now?

Consolidate all older FFEL loans to Direct loans.

This way they will
1) have zero interest and forbearance through September 30, 2021;
2) be set up for the lowest income-driven plan when payments restart;
3) be set for PSLF if working public service; and
4) be ready in case of any further forgiveness approved by Congress. As always, consult with a student loan advocate to be sure to avoid any pitfalls of consolidation such as not combining Parent Plus loans, and preventing someone from starting over on an existing Income Driven Plan.