What Does the Student Loan Payment Pause Imply?

Advisor February 3, 2021

With a change in government, there is an expectation for a change in policies. This year the US elections were fought on the basis of two policy outlooks: one of racial justice and the other of a financial stimulus to shoulder a crumbling economy. Hence, after coming into office, Joe Biden played his cards to help alleviate the financial strain felt by many households due to coronavirus that has subdued all economic activity and frozen many sources of regular income.

On the first day in office, Joe Biden announced an extension in student loan repayment pause till September 2021. This relief was first offered in March 2020 and has effectively suspended the obligating for paying off a student loan in the nineteen months tenure that followed and is still ongoing.

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Demands for Complete Forgiveness of Loan Repayment

There is a group of people who are insisting that this suspension of student loan repayment for more than one a half year is insignificant when looking at the bigger picture and that the government should have announced loan forgiveness. On the other hand, the government did announce a plan to inject $10000 as an economic stimulus by canceling student debts. However, the plan of action has not been detailed out.

Regardless, the situation is not grim for all the people paying off their student loans. Some have been granted a healthy reprieve from loan repayments under the two already in action loan forgiveness program:

Income-Driven Repayment
Public Service Loan Forgiveness

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– The Income-Driven Repayment

The income-driven repayment forces students to size loan repayments based on their income. Hence, if somebody is unemployed or earning too little under a stressed economy, they will not be entitled to make any repayments on loan in the months where their earnings were nominal. Under this scheme, loan repayments should be made only for 20 years, after which all their remaining debt will be written off.

– The Public Service Loan Forgiveness

This scheme is being offered by the federal government as an incentive for students to enter public service. The opportunity cost is always higher in such a case since the private sector often promises higher salaries, and other facilities, and a chance of rapid promotion.

Thus, to bait more students in the public service sector, the PSLF demands that people pay off their loan for ten years, after which all their remaining debt will be turned to nil, that is all their pending student loan will be forgiven. The loan repayment pause period will also be counted within the ten years, thus also meaning a debt relief of almost nineteen months’ worth of repayments.

Unsplash | Federal employees are incentivized with efficient loan repayment programs

However, the people who do not qualify for these student debt programs have only been offered temporary relief in repayments and will eventually have to pay off their entire loan in the form of an extended loan period.