PFT #59 – Personal Finance Tip of the Week: Student Loan Forgiveness and Moratorium

The federal student loan moratorium has been extended for the fourth time due to the Coronavirus pandemic and at the same time President Biden’s student loan moratorium has been the subject of criticism and lawsuits.The loan relief began in March of 2020 and was set to end September 30, 2021 which was moved to January 31, 2022, then May 1, 2022 and onward to 8/31/22.
The extension of the student loan moratorium is scheduled to lapse 60 days after June 30 or the actual day that the Supreme Court makes a decision on the student debt program, whichever comes first. Federal student loan repayments would resume around August 30, unless the Biden government decides to prolong the moratorium.Congress recently passed a law preventing further extensions of the payment pause. Student loan interest will resume starting on Sept.1, 2023, and payments will be due starting in October 2023. We will notify borrowers well before payments restart.WIth the suspension payments, we know this is needed for many Americans; however, the important notion is to consider making payments if you have the means to do so.The simple fact is that you are delaying payments which only extends the life of your loan. So let’s take the average student loan interest of 6% and the average loan amount of $30,000 for a 20-year period.That comes to $215 per month or $5,600 over the full moratorium period which is currently 26 months. After this duration, you’d still have a principal balance of $28,201. The bottom line is that it takes a long time to pay loans off and they are simply a sword in the sides of borrowers. However, amortization is weighed heavily on interest at the beginning of the loan so all payments help, especially additional principal. The second point is you should not rely on congress for student loan forgiveness as the odds are small. Just $10,000 given to each borrower would cost the government over a quadrillion – and if you don’t know that’s a 1 with 12 zeros after it.