Tax Law

The Student Loan Moratorium Has Been Extended Yet Again. Why?

The Biden administration’s latest student loan moratorium extension kicks the can for another four months for ambiguous reasons.

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sad worried man in stress with piggy bank in bad financial situationAs expected, President Joe Biden extended the student loan moratorium until August 31, 2022:

“The Department of Education is committed to ensuring that student loan borrowers have a smooth transition back to repayment,” said U.S. Secretary of Education Miguel Cardona. “This additional extension will allow borrowers to gain more financial security as the economy continues to improve and as the nation continues to recover from the COVID-19 pandemic. It remains a top priority for the Biden-Harris Administration to support students, families, and borrowers — especially those disproportionately impacted by the pandemic. During the pause, we will continue our preparations to give borrowers a fresh start and to ensure that all borrowers have access to repayment plans that meet their financial situations and needs.”

There are a lot of ambiguous terms in the secretary’s statement. First of all, he wants to wait until borrowers “gain more financial security”? What does that mean? A zero percent unemployment rate with everyone getting six-figure jobs?

The secretary also wants to make sure that the borrowers have a “smooth transition back to repayment.” The moratorium began because states shut down everything which prevented people from working and earning money unless their employers received Paycheck Protection Program money. But the economy is improving and people are working again. Granted there are some people who lost their jobs permanently and couldn’t find a comparable one, so for these people their payments should be lowered or put on hold. And there are some who don’t want any transition at all, and some of these people might have to learn the hard way. But for those who are back to their normal lives or better, shouldn’t they be able to smoothly transition back to repayment? Isn’t this a part of getting things back to normal?

Then he notes that he wants to continue preparations to give borrowers a “fresh start.” I suppose that can mean one of two things. First, he wants to help those who are delinquent or are in default status or are confused as to why their balances are so high. This is good. People who feel lost are less likely to enter into repayment. If they can get back into good standing and have any garnishments released, then they might be willing to enter into a sensible payment plan. The other meaning to getting a fresh start is bankruptcy. While the secretary cannot restore bankruptcy to student loans, he can cancel federal loans which he has done on a case-to-case basis over the past few years. They are still mum on whether they will cancel student loans.

The secretary wants to ensure that all borrowers have access to repayment plans that meet their financial situations and needs. This is what the current income-based repayment programs are designed to do although it is not meant to help people live lavish lifestyles while making minimal loan payments. But I think the “cancel student debt” people are not interested in a repayment plan that meets their financial situations and needs. I wonder why?

And he especially wants to help those who were disproportionately affected by the pandemic. I’m pretty certain he is referring to certain racial and marginalized groups who have recently gained the spotlight. The question here is whether people should be treated differently based on ethnicity or a physical or mental disability.

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Finally, he notes the department’s accomplishments in helping debtors. They have implemented new rules to make it easier for public service workers to qualify for Public Service Loan Forgiveness but only for a limited time. They have made it easier for people to claim borrowers defense against fraudulent schools and get their loans forgiven. And they have forgiven student loans for veterans and borrowers with permanent disabilities.

The Biden administration’s latest student loan moratorium extension kicks the can for another four months for ambiguous reasons. If this was done for political reasons, it may make the administration look indecisive and could turn off voters in November. The August 31 deadline is likely to be extended again, but I do not recommend making major financial or budgeting decisions relying on this assumption.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at stevenchungatl@gmail.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

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