The Student Loan Interest Freeze May Get Extended Past February 2022



After numerous extensions to the federal student loan payment and interest freeze, the scheduled end of August 31st, 2022, hardly feels final.

The challenge for borrowers is balancing the likelihood of another extension with the need to plan for future expenses.

While it is possible that repayment beings on September 1st, 2022, there is a ton of evidence to indicate that a January start date is the one that borrowers should circle on their calendar.

Covid-19 Relief or Political Strategy?

The student loan payment and interest freeze started with broad bipartisan support at the beginning of the Covid-19 pandemic.

More than two years later, support for additional student loan help has faded. Congressional Republicans have even proposed legislation that would end the relief.

However, many student loan borrowers are still unable to resume making payments. Many Democratic legislators are calling for additional relief for borrowers.

The challenge for the Biden Administration will be navigating the political fallout from whatever decision is made.

In this context, an August 31st, 2022, restart looks unlikely. With midterm elections scheduled for November, the planned restart could be a massive mistake for Biden. Angry student loan borrowers may hold Democrats accountable for their student loan issues.

An extension until January 2023 would dramatically reduce the consequences for Biden and the Democrats.

Evidence for a Further Extension

SoFi is a multi-billion dollar company that started as a student loan refinance lender. They have lobbyists in DC, and their CEO recently made a public plea for Biden to restart payments on May 1. This is a company with resources and a huge financial incentive for repayment to resume as soon as possible.

However, as a publicly-traded company, SoFi is obligated to inform its shareholders of the company’s projected earnings and economic outlook. Last week, SoFi slashed projected earnings telling investors that the student loan payment and interest freeze will likely last until 2023.

For borrowers, this is compelling evidence that the student loan relief will last until at least January 2023.

The Strategy before the Restart

Borrowers looking to get the most out of the student loan relief should consider the following:

Ask for a Refund on Previous Payments

Federal student loan payments made during the 0% interest and payment freeze can be refunded.

I recently heard from one borrower who ran into a medical issue and received a refund of thousands of dollars.

The refund process is simple, and it is an excellent opportunity for borrowers to build up their emergency funds. Those that wish to attack their student debt can always make a large payment at the end of January.

The benefit of getting the refund is flexibility and whatever interest your savings account earns.

Many borrowers are making extra payments to maximize the 0% interest.

I think the ideal approach is to hold on to this cash until the restart. There isn’t any benefit to paying now versus paying later. At the very least, you can put that money in a high yield savings account and earn some interest.

The one exception would be borrowers who might be tempted to use the cash for something unnecessary. If you see the money sitting in a savings account and it is burning a hole in your pocket, sending it to your lender to avoid temptation is a reasonable choice.

Get Ready Before 2023

The repayment restart will be ugly. Loan servicers expect to receive more calls in a month than they typically receive in a year.

Borrowers that get questions answered ahead of time will avoid headaches.

Before payments resume, it is a good idea to know your repayment plan, how much you will be paying per month, and how you will make payments. If you are working towards forgiveness, take steps to track your progress before servicers get slammed.

Factors That Might Lead to an Early Restart

Inflation is a big wildcard for borrowers to watch. Some argue that the payment and interest pause is contributing to inflation. This argument is demonstrably false, but borrowers should still be wary if inflation fears as a barrier to student loan relief.

Another item to watch is the possibility of a $10,000 loan cancellation. At this point, some form of loan forgiveness looks very likely. Its possible that Biden announces loan forgiveness and the repayment restart at the same time.

What the Extensions Mean for Borrowers Chasing Forgiveness

Borrowers chasing student loan forgiveness are some of the biggest beneficiaries of the student loan payment freeze.

These borrowers haven’t been required to make payments for over two years, but the time still counts towards the various loan forgiveness programs, including PSLF.

These borrowers will want to make sure that they are ready to resume making payments right away. If you want to avoid any issues, calling your servicer before the restart is a good idea. Verify that you are enrolled in the repayment plan you want and that payments have been correctly calculated. Resolving these issues before the restart will help prevent delays and missed months.