The Covid-19 omicron variant is continuing to add more uncertainty to an already delicate situation. In response, the Biden administration has extended the federal student loan repayment moratorium until May 1, 2022. It was originally set to end on Jan. 31, 2022.
However, for the nearly 43 million federal student loan borrowers, they shouldn't assume this payment freeze will go on forever. In a statement, Biden's team said, "Meanwhile, the Department of Education will continue working with borrowers to ensure they have the support they need to transition smoothly back into repayment and advance economic stability for their own households and for our nation."
This announcement is a reversal as less than two weeks ago White House press secretary Jen Psaki indicated that federal student loan payments would restart in February.
So if you currently have outstanding federal student loans, here's what you should know.
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Federal student loan repayment moratorium
Since March 2020, federal student loan borrowers have not needed to pay any principal or interest on their loans. And now, for the next five months, federal student loan borrowers will still not be required to pay anything towards their student loans.
However, once the calendar turns to March and April, be on the lookout for a billing statement. Borrowers will receive a notice at least 21 days before their payment is due, according to the Department of Education.
This extension continues to benefit those vying for Public Student Loan Forgiveness (PSLF), as their 10-year repayment period still continues, regardless of if they're making payments or not during the moratorium.
Note that this moratorium does not affect those with private student loans, as they still have to make payments on their debt.
What to consider if you have federal student loans
This long freeze has left many borrowers with two potential strategies:
- Don't pay until payments are required, and potentially focus on other financial goals like investing, or hope for student loan forgiveness
- Pay down the balance aggressively as there is no interest
While one option is not better than the other, it's important to understand your short- and long-term financial goals to figure out which strategy works best for you.
Currently, my private student loans have a low interest rate, but I want to eliminate my student loans as quickly as possible. But with federal student loans, you're eligible for things like student loan forgiveness programs, and protections in the case of permanent disability.
Bottom line
The omicron variant is causing shakeups in many parts of our economy and markets, and amid pressure from many Democrats, the Biden administration decided to extend the federal student loan moratorium.
If you hold federal student loans, be sure to adjust your 2022 budget accordingly.
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