The current White House admin has recently noted that it will extend the student loan payment pause. Of course, it is important to note that this applies to those that have been through the Federal Government and that it does not apply to private student loan options. It didn’t apply to them when it was first rolled out last year and will not apply now.
This time, they will extend it into end of January 2022.
The DOE notes that this will be the last one (I’ll believe it when I see it).
“The payment pause has been a lifeline that allowed millions of Americans to focus on their families, health, and finances instead of student loans during the national emergency,” Secretary of Education Miguel Cardona noted to SentryHill. “As our nation’s economy continues to recover from a deep hole, this final extension will give students and borrowers the time they need to plan for restart and ensure a smooth pathway back to repayment.”
These student loan payments were about to expire in September but the White House felt that it would a good idea to extend it again. Now, why would it feel that it is necessary to do so?
Why would the current leadership in Washington DC think that it would be fine to extend the student loan payments and stop accrual of interest payments? If what the Federal Reserve is saying is right and the economy is in good condition, then why is it necessary to provide more support to various types of people? For instance, the CDC noted recently that it would not extend eviction moratoriums, lo and behold, a few weeks later, it extends the moratorium. The eviction moratorium will extend over into October and expire within that month.
This is among a slew of other support programs that are still in play in what is supposed to a healthy and vigorous economy.
Moratoriums Help You Spend Money
If you have a total of $200,000 on your student loan but find that it is automatically on pause for an year or so, you would be delighted. You would be delighted to know that the principal payments are not necessary for a short time and that interest will not accrue on your principal either. That is a fantastic deal. What does that mean for you?
Well, it shows that you do not have to worry about current payments and suddenly find yourself with extra cash to spend on other items. You can use that extra cash that you have to eat out, buy clothes, or pay down your credit cards. Of course, most people in the United States are taking on more debt instead of eliminating current debt but that goes to show that people are opening up their wallets. As more people open up their wallets to take out their credit card, it shows that consumer confidence is coming right back! It shows that people are not staying inside and as fearful as they might have been in the past.
As you can see, more relief one side of the picture (student loans, housing, unemployment benefits) creates stimulus on the other side (spending, debt increase to spend on more stuff, etc). Isn’t it fantastic?
Well, not really because you have to wonder about the consequences of these policies. Sure, a housing moratorium could help people with more time to find ways to increase their earnings and somehow stay current but if the economy is not truly thriving, perpetual moratoriums will not have a significant impact. But these moratoriums or additional benefits in other regards, from employment to student loan forbearance can create bad habits. The obligations are still there, but like the government debt, kick it down the road. The student loan principal stays the same but kick it to next year. Spend today and don’t worry about making significant changes to increase earnings, improve one’s self or take other actions to take care of obligations and improve prospects. No, merely rely on the government to extend it and then think about it later.