Student loan payments start again in October – here’s how to prepare
As of March 2020, federal student loan payments have been suspended for millions of borrowers in the United States. But that temporary abstention period (which President Biden extended in January 2021) is expected to end in September – with the exception of last-minute extensions or alternative student loan relief measures. If you have federal student loans, take action now to prepare for resuming student loan payments in the not-so-distant future.
What Benefits Do Federal Student Borrowers Have During the Coronavirus Pandemic?
The CARES Act and subsequent extensions provided several relief measures to help federal borrowers cope with the coronavirus pandemic. For most borrowers, the three most significant student loan benefits are:
- Eligible borrowers do not have to make payments on Federal Student Loans or FFEL Program Default Loans by September 30, 2021.
- Interest is temporarily suspended on eligible federal student loans and FFEL program defaulted loans until September 30, 2021.
- Efforts to collect delinquent federal student loans and delinquent FFEL program loans are temporarily suspended.
Private student loan borrowers are not entitled to any government-mandated relief at this time. Yet, this does not mean that private lenders are unwilling to offer assistance in times of hardship. If you can’t afford to pay off your private student loans at this time due to COVID-19 issues, you should call your lender to ask if temporary relief measures are available.
How to prepare for the end of federal student loan forbearance
It’s a good idea to start taking steps now to prepare yourself both financially and mentally for resuming your monthly student loan payments. Here are four ideas you might want to consider.
1. Continue to make payments
The coronavirus pandemic has impacted household budgets across the country. Still, if you can still afford to pay off your student loan before the federal suspension of payments ends, it could be a great way to pay off your debt faster and save money.
Kat Tretina, Certified Student Loans Advisor, explains why making manual payments on your Federal Student Loans during this time could benefit you. “Due to the CARES Act, the interest rate on federal loans is set at 0%, so any payments you make will go toward principal rather than interest charges,” she says. “Making payments now will reduce the amount of interest accrued later.”
If you’re wondering how much those interest-free payments could save you, both in repayment time and money, a student loan calculator can help you figure the numbers.
2. Pay yourself
Another option you might want to consider is paying off your student loans while monthly payments to your student loan manager are suspended. Even if you can’t afford to pay the full payment on a student loan on your own, you may be able to make a partial payment and put those funds in a high-yield savings account.
Once normal payments resume (or are about to resume), there are two options you can consider. First, you can make a lump sum payment to your manager before the interest-free period of your loan expires. Alternatively, you can choose to keep the money you’ve saved in an emergency fund or use it to provide additional cushion in case you find it difficult to keep up with your monthly payments down the road.
However, keep in mind that everyone’s situation is different. If you have high interest debt or hold private student loans, you may want to consider making different money transfers while your federal student payments are pending.
3. Asking for other types of help
Coronavirus relief measures aren’t the only way to get help with your federal student loans. The Department of Education offers other types of assistance to borrowers who qualify for a student loan under normal circumstances.
For example, after this automatic forbearance period ends, you can request that your federal student loans be deferred if you need to temporarily reduce or postpone your payments. Remember, however, that interest can continue to accrue on your loans even while your payments are pending.
Applying for an income-based repayment plan is another option you may want to consider. If you qualify, your monthly payment will adjust based on your income and family size, and you could have your remaining balance discharged after 20 to 25 years of payments.
4. Determine if refinancing is right for you
Finally, you may want to see if refinancing your federal student loan would benefit you financially. Refinancing student loans can help you save money over the life of your repayment or reduce your monthly payment amount.
Of course, it’s important to think carefully about whether refinancing is right for you – especially if you have federal debt on a student loan. If you decide to refinance, you will lose federal benefits such as access to income-based repayment plans and loan forgiveness eligibility.
Coronavirus Student Loan Forbearance FAQ
Who can benefit from administrative abstention?
If the Department of Education owns your loan or if you have a past due FFEL program loan, you should be eligible for administrative forbearance benefits. Student loan administrators have placed qualifying student loans under automatic administrative forbearance. You can call your repairman if you have any questions.
When do federal benefits expire?
The federally mandated administrative forbearance will expire on September 30, 2021. So, unless there is another extension or another law of Congress, the regular repayment of federal student loans (including automatic payments) will resume on October 1, 2021.
Will forbearance for student loans be extended?
Education Secretary Miguel Cardona recently said he was not completely opposed to extending the break on federal payments. “We’re looking at it,” he told the Education Writers Association’s 2021 conference. “Obviously, we’re always going to be guided by what the data tells us and where we are as a country in terms of resuming the pandemic. It’s not out of the question, but right now it’s September 30th. “
Steve Muszynski, founder and CEO of Splash Financial, predicts that student loan payments will likely resume in October due to the rising economy and current vaccination rates. “However, it also seems plausible that the government could introduce targeted student loan cancellation at around the same time to reduce the negative outlook on start-up payments for more than 40 million Americans,” he says.