What to Know as the Pause on Student Loans Is Set to Expire

College students heading to campus this fall may be confused by the recent headlines about student debt, and wonder: Does any of this affect me?

Will the pause on student loan repayments that started early in the pandemic be extended? Will some student debt be erased?

“It’s a very confusing time,” said Regan Fitzgerald, manager of the Pew Charitable Trusts’ project on student borrower success.

Here’s a rundown of what’s known and unknown, and what students should consider.

The pause on payments and interest on most federal student loans is scheduled to end on Aug. 31. An extension would have less impact on students still in school because they’re not yet repaying their loans, financial aid experts say. (Even in-school borrowers, though, are benefiting from the pause on loan interest.)

And while it’s still unclear whether the Biden administration will act to forgive some student debt, any relief may be limited. It may be targeted to borrowers with income below certain limits and loans borrowed before a given date (possibly before June 30 of this year, according to Politico) — suggesting that students who borrowed as recently as the 2021-22 academic year could benefit. But until plans are announced, “we are not sure what the parameters will be,” Ms. Fitzgerald said.

Student Loans: Key Things to Know

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Student Loans: Key Things to Know

New rules. The Education Department is preparing a raft of new rules for federal student loans that aims to expand access to various relief programs. Among the measures are also limits on interest capitalization — which adds unpaid interest to the borrower’s principal, compounding the total amount owed.

Student Loans: Key Things to Know

Inflation and debt cancellation. Rising prices are complicating a fraught debate among President Biden and his advisers over whether to cancel thousands of dollars of student loan debt for tens of millions of people. A decision is expected before the end of August.

Student Loans: Key Things to Know

Defrauded borrowers. The U.S. government will cancel $6 billion in federal loans for about 200,000 former students who attended for-profit colleges and other schools accused of fraud. Those who applied for relief will have their loans wiped out if they attended one of more than 150 schools named in a class-action settlement.

Student Loans: Key Things to Know

New sources of aid. The Education Department will use one-time waivers and adjustments to retroactively credit millions of borrowers with additional payments toward loan forgiveness. The move will help people seeking to have their loans eliminated under the Public Service Loan Forgiveness program and through the use of income-driven repayment plans.

Student Loans: Key Things to Know

Payments delayed again. President Biden pushed the restart date for federal student loan payments to Sept. 1, extending a pause put in place at the start of the pandemic. Millions of borrowers who have defaulted on their federal student loans will also get a fresh start and have their loans restored to good standing.

In an emailed statement, an Education Department spokesman said that the department’s “review of broad-based debt cancellation remains ongoing and no decisions have been made.”

Because the rules seem to be ever changing, it’s important for borrowers to keep up with student loan options and policies, Ms. Fitzgerald said. “Financial awareness around student loans is very important,” she said.

Students who are borrowing money for the fall should concentrate on what they need rather than speculate about whether some debt may be erased, said Michele Streeter, associate director of policy and advocacy at the Institute for College Access and Success, a nonprofit that promotes college affordability.

“I would strongly advise that no one should borrow on the assumption that any loans will be forgiven in the future,” Ms. Streeter said. “If I were a borrower, I would turn off the noise and focus on what I need to borrow at the moment.”

Mark Kantrowitz, a financial-aid expert, advises students to borrow “only as much as you need, not as much as you can.” Your total debt at graduation should be less than your anticipated annual starting salary, he said — ideally, “a lot less.”

Abby Shafroth, a lawyer with the National Consumer Law Center, said students rightfully worried about borrowing too much but should also be wary of borrowing too little. “You don’t want to borrow less but then not have enough for books,” she said.

The Consumer Financial Protection Bureau offers tools on its website to help determine how much you can safely borrow based on your financial situation and anticipated income after graduation.

Here are some questions and answers about student loans:

What are the current interest rates on federal student loans?

On July 1, rates for federal student loans for undergraduates rose to 4.99 percent for loans made through June 2023. Rates on federal loans are set each spring based on a formula and apply to all new loans made during a given academic year. The rate is fixed for the life of the loan. So if the rate on your loan for the last academic year was 3.73 percent, that won’t change. (Rates on most student loans are temporarily set to zero during the repayment pause; regular rates are expected to apply when the pause lifts.)

How much can I borrow for college each year?

In general, dependent students can borrow up to $5,500 in federal loans their first year, $6,500 their second year, and $7,500 for each of their third and fourth years, with an overall cap of $31,000 (in case it takes longer to graduate). Borrowing caps are higher for independent and graduate students. Parents can borrow so-called Plus loans, at higher interest rates, if additional funding is needed. (Private lenders also offer student loans, but the loans lack the consumer protections of federal loans and are not included in the payment pause.)

Will the pause on student loan repayments be extended?

It seems increasingly probable, as the August deadline approaches without an announcement of plans to restart payments. “I would say it’s very likely there will be another extension,” Ms. Streeter said. Mr. Kantrowitz said he thought that the pause might be extended into next year.

Loan servicers — the companies that send out statements and manage payments for borrowers — have been given “strong guidance” from the Education Department to hold off on notifying borrowers about resuming payments, said Scott Buchanan, executive director at the Student Loan Servicing Alliance, an industry group. If the repayment pause isn’t extended, he said, “we’ve missed out on an opportunity to prepare for it.”

The New York Times offers a guide to help borrowers prepare for repayment.

A spokesman for the Education Department said that it would communicate directly with borrowers about the end of the payment pause when a decision is made, adding that President Biden has indicated that will happen by the end of August.

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