(NEXSTAR) – Following months of anticipation, and just a week before payments were set to begin again, President Joe Biden has extended the student loan payment pause.
Former President Trump first enacted the temporary pause on scheduled payments and stopped interest from accruing on federal student loans at the onset of the COVID-19 pandemic in March 2020. The pause essentially froze $1.6 trillion in debt for the roughly 40 million Americans with federal student loans.
Trump and Biden have since extended the pause seven times, meaning regular payments haven’t been made on those loans and interest hasn’t accrued (except for those borrowers who decided to opt-out of the pause) in nearly two and a half years.
Now, following Biden’s extension announced Wednesday, the payment freeze will remain in effect through the end of December.
Biden said Wednesday this is the last time payments will be put on pause.
When payments do resume on January 1, your payment could be smaller than it currently is, and not just because you may receive debt relief.
The Department of Education has proposed a new income-driven repayment plan to cap monthly payments on loans used for undergraduate education at 5% of your discretionary income (the amount of money you have left over after paying necessary expenses), down from the 10% mark currently in place.
To protect borrowers with less discretionary income, the plan states that anyone making roughly the equivalent of $15 an hour or less won’t have to make a monthly payment.
The proposed rule could also forgive student loan balances for borrowers who had an original balance of $12,000 or less after 10 years. The Education Department says the plan would also prevent interest from growing on a borrower’s balance as long as they are making their monthly payments, even if their payment is $0.
The Biden administration is currently proposing a rule to allow the Education Department to create this income-driven repayment plan. It’s unclear when it could take effect.