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 is a rundown of what is known and unknown and what students should consider.
The pause on payments and interest on most federal student loans is scheduled to end Aug. 31. An extension would have less impact on students still in school because they are not yet repaying their loans, financial aid experts say. (Even in-school borrowers, though, are benefiting from the pause on loan interest.)
And although it is 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,” Fitzgerald said.
In an emailed statement, an Education Department spokesperson said 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 is important for borrowers to keep up with student loan options and policies, 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, senior director of college affordability 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,” 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 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% 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%, that will not 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,” Streeter said. Kantrowitz said he thought that the pause might be extended into next year.
Loan servicers — 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 is not extended, he said, “we’ve missed out on an opportunity to prepare for it.”
A spokesperson for the Education Department said it would communicate directly with borrowers about the end of the payment pause when a decision is made, adding that President Joe Biden has indicated that will happen by the end of this month.