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How Student Loan Pause Extension Could Affect You in 2022?

student loan pause

Following the announcement by the U.S. Education Department, students concerned about student loan payments, collections, and interest, will be relieved to learn that the student loan pause extension will continue for another 90 days, until May 1, 2022.

With this extension, the Department of Education will have more time to assess the impact of the Omicron form of COVID-19 on student borrowers.

Furthermore, you’ll now have more time to prepare for the repayments, rather than finding out too late that they’ll be unable to make them.

The U.S. Department of Education wants to make it as easy as possible for borrowers to resume making payments, and one method to do so is to improve student loan servicing (more on that later).

This guide will explore what you need to know about student loan pause extension and how that can affect you this year. So with that said, let’s begin. 

The Unexpected Student Loan Pause Extension 

Since March 2020, the student loan pause has been extended several times. But the U.S. Department of Education said in the fall that the term would conclude on January 31, 2022. Because of that, millions of borrowers were getting ready to start making payments again in February 2022.

On the other hand, the Biden administration chose to extend the hold for another 90 days to analyze the impact of the omicron version. The Education Department also indicated that it’d use this opportunity to enhance federal loan service in a news release.

In the meantime, what you can do is to make use of the Department of Education’s resources to help you: 

  • Prepare for your payments to resume, 
  • look into public service loan forgiveness
  • Look into income-based repayment plans to cut your monthly payments.

We’ll go through these points and help you make the right decision and prepare yourself. But first, here’s what you need to do. 

What You Can Do During The Extension On Student Loan Pause 

Since March 2020, student loan balances have been frozen for almost two years, with no due payments or accruing interest on most federal loans. However, any student loan debt you had before the COVID-19 epidemic will be due in May.

Here are a few things you can do to prepare yourself for your student loan repayment: 

Update the information in your account

Check that your contact information, such as your phone number, address, and email address, is up to date on your student loan accounts. Because so much has changed in the previous two years, you may have changed your phone number, mailing address, or email address. 

It’ll be more convenient for you to stay in touch regarding your student loans if you notify your loan servicer of any significant changes.

Examine your current repayment plan

Go over your repayment plan again to see if it still makes sense in light of your current financial circumstances. If not, begin looking for the best repayment plan for you or contact your loan servicer for assistance. 

It’s better to take action as fast as possible because there may be turmoil when payments begin.

You should prioritize other financial objectives. 

Focus on areas where you can stretch your money between now and May 1, such as building an emergency fund, paying off high-interest debt, and contributing to a retirement plan.

Your budget is crucial; prepare one. 

You should get an idea of how much your subsequent payments will be and when they are due in May, so you’re not caught off guard. Then figure out how to fit it into your current budget while accounting for any changes in your income. 

To create room in your budget for future student loan payments, you may need to adapt or eliminate expenditure in some areas.

If you can’t afford payments, make a plan.

If you don’t think you’ll be able to make your payments once repayment begins, talk to your lender. They can come up with methods to prevent missing payments or to default. 

Deferment, unemployment deferral, or general forbearance are all options for continuing a payment pause. During a deferment or forbearance, however, interest may continue to accrue. 

An income-driven repayment plan, such as PAYE, IBR, or REPAYE, can obtain you a $0 monthly loan payment if your income is less than 150% of the poverty level.

Examine the terms and conditions of your loan.

Make a comprehensive list of your minimum monthly payments, student loan servicers, interest rates, and outstanding balances. You’ll know exactly how much you owe and be able to double-check the pay-off dates and grace periods for each loan.

Don’t assume your AutoPay will restart when the student loan pause ends

Don’t expect the payments to resume if you’ve signed up for AutoPay. You may need to confirm that your bank account information hasn’t changed. If it has changed, submit new bank account information to your lender.

Consider joining up for AutoPay if you haven’t already. Not only will you be less likely to miss a payment, but many lenders will also lower your interest rate by a quarter of a percentage point as a bonus.

Student Loan Pause: Look Into Public Service Loan Forgiveness (PSLF)

The automatic forbearance won’t harm your progress toward PSLF. If an eligible employer still employs you, months spent in forbearance will count toward PSLF.

Obligations made during the automatic forbearance period won’t put you ahead on your payments. Whether you pay or not, it’s still the same.

In most cases, only total payments are accepted. You won’t lose credit for previous payments, either. Let’s talk more about Public Service Loan Forgiveness. 

How The PSLF Works 

Public Service Loan Forgiveness is a federal program that encourages students to pursue low-paying jobs such as nursing, teaching, public interest law, firefighting, military service, etc.

Before you can qualify for tax-free loan forgiveness, you must make 120 payments over ten years while working for the government or a nonprofit.

On the federal student assistance website, you can use the PSLF Help Tool to determine your eligibility based on the types of loans you have and your employer.

In the wake of the COVID-19 pandemic, the PSLF program has experienced some temporary adjustments. First, all federal loans were placed forbearance until May 1, 2022, with no payments needed.

Second, the U.S. Education Department has granted a limited waiver of some of the more burdensome PSLF requirements until October 2022.

Because of the Public Service Loan Forgiveness waivers, a greater range of past federal loan payments will count toward forgiveness, so long as you worked for a qualified company at the time.

Forbearance On Federal Student Loan Payments 

student loan pause

If you are eligible for PSLF, you don’t have to make payments until the automatic forbearance extension ends on May 1, 2022. Those months of nonpayment will be part of the 120 payments required to qualify for PSLF if you continue to work full-time for an eligible employer.

In other words, if you haven’t paid since March 2020 and won’t until May 2, 2022, you’re still 25 months away from being debt-free.

PSLF Candidates Are Granted A Limited Number Of Waivers 

Any payments you make toward your federal student loans will count toward PSLF under the limited waiver. And it doesn’t matter the current payment plan you’re enrolled in. Payments made on specified repayment programs were formerly the only ones eligible.

Payments that were previously rejected due to lateness will now be counted toward PSLF.

PSLF will be applied retrospectively to any payments made on Perkins loans or FFELP after 2007. This is because these loan payments were previously not included in the PSLF.

Payments made before consolidation would count toward PSLF if you consolidated your non-direct loans before the restricted waiver period. 

Any time spent on active service by military personnel counts toward PSLF, regardless of whether or not loan payments were suspended at that time.

How To Qualify For PSLF Under Limited Waiver Programs 

Borrowers with direct loans who have already consolidated into a direct loan are eligible for the limited waiver. It also includes those who consolidate into a direct loan by October 31, 2022,

However, the limited waiver doesn’t cover Parent PLUS loans. In addition, direct loans aren’t available for all federal loans. 

For example, if you have Perkins loans or FFELP, you must consolidate them into a single direct consolidation loan by October 31, 2022. Then, before October 31, 2022, you must confirm that you work for a qualified company and file a PSLF form.

How To Qualify For PSLF

Even though the waivers are restricted, the U.S. Department of Education has stated that it intends to make the PSLF reforms permanent. However, even if the department makes this move, many existing requirements will stay the same. 

Also, parent PLUS borrowers who want to be eligible for PSLF forgiveness must meet the current requirements.

PSLF is only available for loans part of the direct loan program. So private student loans are not eligible for this program. However, other types of federal loans, such as Perkins loans or FFELP, can be consolidated to make them PSLF-eligible.

If you qualify for Perkins loan cancellation after five years of public service, take advantage of it instead of consolidating your Perkins loans. With your other federal student loans, you can still participate in PSLF.

How To Apply For PSLF 

First, by October 31, 2022, consolidate your FFELP program and Perkins loans into a Direct Consolidation Loan. You won’t get credit for payments made after that date if you combine loans after that date. 

After you’ve completed the consolidation, you’ll need to submit a PSLF form to your loan servicer.

The following are the following steps to take:

  • First, double-check your student loan types In your Aid Summary.
  • Then, complete Step 1 of the PSLF Help Tool to verify qualifying employment.
  • If your employer qualifies, request a Direct Consolidation Loan by October 31, 2022. And also, if you have a loan that’s not a Direct Loan.
  • By October 31, 2022, submit a PSLF form via the PSLF Help Tool.

Some Factors To Consider Before You Begin With PSLF 

Reducing Work Hours Could Affect Your Eligibility

To have your suspended monthly payments qualify for Public Service Loan Forgiveness, you have to continue working for a qualifying organization full-time. 

You can work part-time for many qualified organizations to achieve the full-time requirement, but these employers should be eligible.

Your suspended payments won’t count toward PSLF if you lose your job or don’t work for a qualifying company full-time. However, you don’t lose your PSLF eligibility completely. 

Payments made at that time will contribute toward PSLF if you later meet the full-time status and qualifying employer requirements. In addition, these new qualifying payments can be added to the total number of qualifying payments you received before losing your job or full-time position.

Your Forgiven Amount Will Be Reduced If You Make Additional Payments

Making extra payments while zero percent interest is usually a solid financial plan. On the other hand, additional payments may not be in your best interests if you are applying for PSLF.

You won’t qualify for PSLF quicker if you make monthly payments during the payment stop. The $0 monthly payments that have been suspended already count against your necessary 120 PSLF payments. As a result, if you stop any further payments, you increase the amount forgiven. 

Consider Income-Driven Repayment Plans To Lower Your Payments 

Signing up for an income-driven repayment plan may be a suitable alternative if your federal loan payments are too much to handle. 

IDR programs assist millions of borrowers in making monthly student loan payments. First, however, it’s crucial to understand how the IDR plans work and their differences.

Which IDR Plan Is The Best For You? 

student loan pause

Your monthly payments will be limited to 10% to 20% of your discretionary income, depending on the plan. However, some programs include a payment cap, whereas others do not.

Additionally, depending on the income-driven repayment plan you choose, any outstanding balance may be forgiven after 20 to 25 years.

There are four main types of IDR plans. Let’s go through them. 

1. IBR Plan 

With the IBR plan, You should show that you’re in a partial financial hardship. Only then will you be eligible for both the new and old IBR programs. The payments every month are equal to 10% of your discretionary income if you took out loans on or after July 1, 2014. Any unpaid amount will be erased after 20 years of payments.

If you have older student debts, your monthly payments will be 15% of your discretionary income, and student loan forgiveness will take 25 years to qualify for.

2. PAYE Plan 

PAYE (and the new IBR plan) provide less than 10% discretionary income. It’s the fastest route to loan forgiveness in 20 years. 

However, you must show a partial financial hardship to be eligible for PAYE. You must also have taken out federal student loans after September 30, 2011. 

You might be eligible for PAYE if you had loans from as far back as October 1, 2007, so far as you weren’t already repaying other loans debt at the time.

3. REPAYE Plan 

The REPAYE plan is open to almost anybody with federal student loans. REPAYE appears to be comparable to PAYE and the new IBR at first glance, with payments equal to 10% of your discretionary income.

4. ICR Plan 

Because your monthly payments are 20% of your discretionary income, ICR is the least generous and least popular of all IDR plans.

An ICR plan takes 25 years to qualify for loan forgiveness or ten years for borrowers eligible for PSLF. 

ICR has one advantage: it’s the only IDR plan that admits borrowers with Parent PLUS Loans. However, you must first change your student loans into a federal Direct Consolidation Loan.

Final Thoughts 

The extension on the student loan pause may help millions of borrowers in the country. But, while you wait, you can still do something about your student loans. 

Student loan debt can be burdensome, and loan forgiveness is difficult to achieve, regardless of which path you take. It takes years and may not pay off in the end. In addition, it puts you at the mercy of student loan servicers with many clouts. 

So if you have the chance for loan forgiveness, use the student loan pause to rethink your decisions and take the necessary steps. This guide will help you do that, so go through them and if you have any questions, ask a student loan expert.