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Student loan payment freeze provides much-needed relief for distressed borrowers

By on March 9, 2021 0

WASHINGTON – President Biden’s decision to extend the freeze on student loan payments until October has given borrowers a much-needed financial cushion and the ability to spend the extra money on other basic necessities.

Distressed families or student borrowers facing loss of income or unforeseen expenses related to the pandemic can use the break to pay other bills for rent, food, medicine or child care, depending on the situation. experts.

Better-off borrowers could also use the savings to pay off the principal on their loans or put more money in the bank.

The two groups are of comparable size, according to a survey conducted by Student Loan Hero in May. Some 42% of borrowers said they had stopped repaying their loans and paid their bills or other debts instead.

The others reduced their student loan balances with regular or occasional payments.

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About a third of all borrowers surveyed said they couldn’t afford enough food and had to use the extra money to buy groceries and other basic items.

“It gives them a lot more personal flexibility in their budget today,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance trade group.

Experts say there is not enough data at the moment to show which portion of borrowers will use the temporary student loan hiatus to make large investments, like buying a home or paying down a mortgage. mortgage.

Biden asked the Department of Education to extend the suspension of student loan payments on day one of his tenure through an executive order. The freeze was originally put in place by Trump’s White House in March 2020 during the first phase of coronavirus relief efforts.

“Too many Americans struggle to afford basic necessities and provide for their families. They shouldn’t be forced to choose between paying off their student loans and putting food on the table, ”the education ministry said in a statement written last week.

The demographics of student loan borrowers are diverse, and some have experienced far more financial hardship than others during the pandemic. Unemployment among blacks and Latinos is over 9% compared to 6% for white adults, according to the Bureau of Labor Statistics.

Borrowers of color and women are disproportionately harmed by student debt, said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center. They or their families tend to have less wealth or earn less.

The result: Borrowers of color are more likely to spend their deferred payments on immediate expenses or urgent debts rather than boosting their savings or reducing their outstanding loans.

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The suspension of loan repayments also ended payday foreclosures and the diversion of tax repayments to student debt, Yu said, giving struggling families a greater sense of financial security.

“The fact that the tax refund is not captured during this period is huge for these families,” Yu said.