In March 2020, due to the COVID-19 pandemic, which resulted in millions of people losing their jobs and facing financial insecurity, federal student loan payments were halted, and interest rates were set at zero.
So when do student loan payments resume?
In August, the Biden administration extended the federal student loan payment suspension until January 31, 2022. Despite warning that it was a “last extension,” the agency has now delayed repayments until May 2022.
So you need to take action now to prepare for when federal student loan payments resume in the not-too-distant future if you have federal student loans. This guide will show you everything you need to know.
Let’s begin.
Benefits Of Having Federal Student Loans During COVID-19 Pandemic
Several relief mechanisms were included in the CARES Act and the following extensions to help federal student loan holders cope with the coronavirus outbreak. The three most important student loan perks for most borrowers are:
- Until May 1, 2022, eligible borrowers don’t have to make monthly payments on defaulted FFEL Program loans or federal student loans.
- Interest on defaulted FFEL Program loans and qualified federal student loans is temporarily halted until May 1, 2022.
- Measures to collect defaulted federal and FFEL Program loans have been temporarily halted.
The most current 90-day extension gives government debtors even more time to recuperate from financial difficulties caused by the pandemic.
With 0% student loan interest rates, you can use the money to cover basic expenses. And also pay off debt, build an emergency fund, or even pay down the additional principal on their student loans.
Currently, private student loan holders don’t qualify for any government-mandated assistance. The same is true for borrowers with earlier federal student loans owned by private entities.
This isn’t to say that private loan lenders don’t want to help those in need. However, if you can’t now pay back your private loans due to COVID-19 difficulties, you should contact your lender to see if a temporary respite is available.
9 Things You Should Know And Prepare Before Student Loan Payments Resumes
1. Get In Touch WIth Your Federal Loan Servicer
You should first call your federal loan servicer to get an update on your account and check your payment due date. Then, if you have any questions about anything you see, speak to them directly.
Remember to do this as soon as possible, as servicers will most certainly receive a flood of inquiries when payback approaches. In addition, since a few federal loan servicers have discontinued their contracts, make sure that your loan servicer has your most up-to-date contact information.
This could indicate that some federal loan accounts have been transferred to a new servicer. You can also talk to your federal loan servicer about opportunities for deferring payments even longer.
If you’re not financially ready to begin payments, you could consider enrolling in an income-driven repayment plan, which would cap your monthly dues at a proportion of your income. You can also look into forbearances and deferments, which would maintain your debts in a postponed position but at the cost of interest accrual.
2. Get To Know Or Familiarize Yourself With Your Debts.
You should use this time to get your payments in order even though the pause has been extended.
Obtain responses to the following criteria:
- types of loans you have taken out;
- amount of your student loan balance;
- your interest rates;
- name of the company that provides your service;
To learn more about federal student loans, go to studentaid.gov.
You’ll be better off finding out how to handle your loans if you know more about them. It’s also crucial to know which firm manages your loans because some servicers changed throughout the pandemic.
3. See If You’re Eligible For Any Loan Forgiveness Programs
President Joe Biden announced multiple rounds of student loan forgiveness this year, aimed at borrowers with total and permanent disabilities, students who attended now-defunct institutions, and public servants.
You can check your eligibility on the Federal Student Aid (FSA) website and your servicer’s website.
This will ensure that you receive any critical reminders about when your bill is due, how big your payment is, or if you’re eligible for any modifications via the extended Public Service Loan Forgiveness waiver.
4. Change Your Payment Method If Possible
You may also be eligible to change to income-driven repayment (IDR) plan, which calculates an affordable student loan monthly based on a borrower’s income and family size. The FSA office offers four IDR choices, each of which limits monthly payments to 10% to 20% of a borrower’s income.
Rates are set to assist borrowers in repaying their loans within a 20- to 25-year time frame.
Looking into an IDR plan makes a lot of sense for people whose income has been reduced during the epidemic to see if the monthly payments would be lower than the new salary.
Debt Consolidation and Refinancing Can Also Help
Other options to consider are debt consolidation and refinancing. Debt consolidation is when you combine your different student loans into a single loan. For example, a couple of federal student loans and a private student loan.
Some borrowers consolidate their student loans to qualify for the Public Service Loan Forgiveness program, which exclusively considers federal direct loan payments when calculating debt forgiveness.
Refinancing is another option for people with student loans. This option may enable you to get a lower interest rate and change your monthly payment amounts to align more closely with your budget.
However, student loan refinancing is not without drawbacks since you would be changing your loans from federal to private loans losing access to federal benefits.
5. Speak With Your Employer
More organizations have begun offering student loan debt assistance to their employees, whether through information sessions about specific loan programs or by offering to help pay off their employees’ debt.
Student debt’s impact on your income could be putting a dent in your overall financial wellness. And one place you might not always look for support to help offset these expenditures is your employer.
Some companies may give direct payments for student loan repayment. Others will make direct after-tax donations to assist pay down their employees’ debt, urging borrowers to inquire about their available options.
In general, employment support can assist you in paying down debt more quickly, which can help you save more for short-term needs, such as emergency savings.
6. You Should Watch Out For Scams During This Period
Nowadays, you can see more student loan-related scams via email, social media, and phone voicemails and calls as repayment approaches.
It’s a massive red flag if someone contacts you and asks for your student loan account PIN or password. That is something that no respectable student loan provider will ever ask you for.
In reality, the STOP Act makes it illegal for servicers to access borrowers’ aid records using personal information. Any entity with access to this information, such as a loan servicer, your university, or the Department of Education, will have their credentials and not need to ask for the borrower’s pin or password.
However, this doesn’t deter the con artists from inquiring. Another significant red flag is if they promise you forgiveness right away without truly understanding anything about your circumstances.
7. Start Paying Before The Pause Expires If You Can Afford It
The suspension of student loan payments also resulted in a 0% interest rate on loans. That means that all payments are applied to the principal during the pause rather than the interest.
Mayotte thinks now is an excellent time to pay down as much debt as possible for borrowers in an excellent financial position.
8. You can Renegotiate Your Bills.
Suppose student loan payments continue to be a headache after you’ve reworked your budget. In that case, you may be able to save money by renegotiating obligations such as phone bills, internet services, and insurance.
Begin by looking at the different possibilities that are accessible. Then contact your service provider and inform them that you will be switching to a carrier that offers better deals.
They might be willing to match or even lower the prices of their competitors. Companies such as Billcutterz contact your service providers and negotiate your costs for you if you don’t want to handle it alone. However, in exchange for performing the legwork for you, you must share any savings with the corporation.
9. Make A Partial Payment If You Can
Many people who could afford it continued to pay their bills throughout the “pause.” That was sensible since it allowed borrowers to take advantage of the zero-interest period to reduce their loan principal. You’ll pay less interest overall if your balance is lower when repayment resumes.
Of course, not everyone has the financial means to do so. In addition, the pandemic wreaked havoc on many people’s finances, which is why payments were halted in the first place. So, if you used the money you would have spent on student loans to pay bills or save instead, it was also a wise financial decision.
That doesn’t mean you can’t take advantage of the interest rate break if you act quickly. You have about a few months until your payments, including interest resume. You can still benefit from reducing your principle if you can make even a small one-time payment, such as $500 or $50 each week before then.
Consider whether it’s worth putting part of your leftover stimulus money, a year-end bonus from your employer, or cash presents this Christmas season to pay down your loan debt before installments begin.
Should You Start Your Student Loan Payments Right Now?
During this suspension period, borrowers can still make payments to reduce their debt. If you have any additional queries, contact your loan servicer.
However, remember that this is a payment halt, not student loan forgiveness. Unless the policy changes again, your debt will be waiting for you when repayment begins at the end of the forbearance period.
So what should you do? In the next section, we’ll show you various options of what to do next.
What Happens If You Continue To Make Your Monthly Payments?
If you want to pay down your debt faster, you should keep making payments on federal loans. If you keep making your monthly payments, you won’t have to pay any new interest on your loans throughout the forbearance period.
Even though your payment will not be smaller, this 0% interest rate will save you money in the long run. And that’s because once all interest accrued before March 13 is paid. And the total amount of your payment will be applied to the principal balance of your loan.
Your initial repayment method will determine whether or not you make a payment during this time:
Those who keep to a typical repayment schedule (usually 10 years) may make payments. You’re unlikely to have much outstanding interest, and making extra payments during the vacation can help you reduce your principal.
To keep your options open, create a savings account and deposit your monthly payments there. Then make a lump-sum payment to your highest-interest loan when payback begins.
If the final aim is to pay until the debts are canceled — typically 20 or 25 years — borrowers participating in income-driven repayment or planning to do so should skip making payments now.
If you want to pay off your debts faster, making payments now may help you reduce the total interest you owe on top of your principal.
Borrowers who qualify for Public Service Loan Forgiveness don’t have to make payments until May 2, 2022. The automatic forbearance months will be applied toward the 120 payments required for forgiveness.
Contact your loan servicer if you have any questions about making payments during the forbearance period.
Do You Want To Pause Your Monthly Payments?
You don’t need to do anything to acquire a forbearance to cease making payments on your student loans. However, interest will not continue to accrue as it would ordinarily.
A forbearance could provide you with breathing room while dealing with other financial issues.
If you are jobless or working part-time, a forbearance could help you pay your rent, electricity, and grocery expenditures. Even if your pay stays the same, a forbearance could help you save money for an emergency fund or pay off another, more pressing debt.
The loan servicer will usually provide forbearance at their discretion, and interest will continue to accrue. In this circumstance, the U.S. Education Department directed all loan servicers to place all student loans in interest-free forbearance automatically.
Are You Seeking Public Service Loan Forgiveness?
The automatic forbearance will not harm your progress toward PSLF. Months spent in forbearance will contribute toward PSLF if you are still employed by a qualified employer.
You won’t get ahead on your payments if you make obligations during the automatic forbearance period. So you’re in the same boat whether you pay or not.
Only entire payments are accepted in the majority of circumstances. You won’t be penalized for past payments, either.
Borrowers Behind Their Loan Payments
Payments are automatically suspended for borrowers more than 31 days late before March 13, 2020. Or who become more than 31 days delinquent shortly after that. This indicates that the loans are under forbearance and will not default.
When a payment on a federal loan is 270 days late, it is sent to collections, resulting in credit damage, wage garnishment, and the seizure of tax refunds.
Each month of the initial forbearance term and the extension through January 2022 would contribute toward the nine months required for loan rehabilitation.
All collection procedures for those who have defaulted on federal student loans have been halted until November 1, 2022. Any compelled student loan payments made since March 13, 2020, are eligible for a refund. Your tax refund will not be released if it was seized before March 13, 2020.
Final Thoughts
Many borrowers have been cautious about making any significant headway on their student loan payments in the hopes that the Biden administration will cancel a portion of their federal student loans, as promised during his campaign.
It’s impossible to predict the administration’s position on student loan forgiveness. And, for borrowers who owe a lot of money on student loans, loan forgiveness is unlikely to wipe off all of their debt.
So when do student loan payments resume? Given the uncertainties, borrowers can evaluate any changes in the situation in the months coming up to May 2022. When loan payments start, however, each borrower will have to decide whether to pay off their debts aggressively or make the minimum payments.
