As the debate around student loan debt cancellation swirls, the pause on federal loan payments is having a pronounced effect on borrowers’ bottom lines: It’s saving them $1.5 billion each month in interest payments, a new report estimates.
Borrowers have not had to pay back their federal student loans since March 2020, when then-President Donald Trump paused monthly payments and interest accrual. As a result, interest and fees on federal student loans fell from an estimated $25 billion in 2019 to $6.3 billion in 2021, according to the Financial Health Network’s FinHealth Spend Report 2022, released Thursday.
The Financial Health Network used the monthly average interest payments for 2019 federal Direct Loan and Federal Family Education Loan Program to estimate how much borrowers are saving in interest each month.
Since the start of the payment moratorium, borrowers have reported using the money freed up from their student loan payments to pay down credit card debt (and boost their credit scores in the process), start saving for retirement, or simply treat themselves to new work clothes. It’s been “life-changing” for some.
Without interest, any payment made over the past year would have been made toward the principal balance of the loan, allowing many to finally make progress on paying down their sizable balances. But few did: just 18% of federal borrowers have made payments on their loans during the pause, according to a report from the Federal Reserve Bank of New York.
As of now, the payment moratorium is set to expire at the end of August. But President Joe Biden doesn’t seem keen to have payments restart any time soon—particularly so close to the midterm elections, when borrowers are also contending with decades-high inflation on everything from housing to groceries to gas and other necessities.
Earlier this week, several outlets reported that Biden is “seriously considering student-loan forgiveness,” based on a private meeting he had with the Congressional Hispanic Caucus. But the president hasn’t made any announcements.
Many Democrats want Biden to do more than keep payments paused, calling for cancellation of up to $50,000 per borrower.
Young voters are on board: A recent Harvard poll found that 85% of 18-to-29-year-olds want the federal government to take some kind of action on student loan debt, including 38% who support cancellation for all.
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