Published Sun, Jul 3 2022 8:00 AM EDT
- The student loan payment pause could be extended again, but borrowers shouldn't count on it.
- Instead, experts recommend they take these steps.
Carol Yepes | Moment | Getty Images
It's right there on the U.S. Department of Education's website: Student loan payments to restart after Aug. 31, 2022.
Skeptical?
It's understandable. The Education Department has repeatedly set an end date for the payment pause on federal student loans, which began in March 2020, and then revised it at the last minute to give borrowers more time. The break has now been extended six times, and most borrowers haven't made a payment toward their debt in well over two years.
What's more, the timing this round is especially sensitive, said higher education expert Mark Kantrowitz.
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Inflation is rising faster than it has in decades and, with the November midterms looming, Democrats likely don't want to be the ones to give millions of Americans another bill while their budgets are already squeezed. The typical student loan payment is around $400 a month.
"I think that repayment will not restart on Sept. 1 — two months before an election," Kantrowitz said. "Most likely, the student loan moratorium will be extended until sometime next year."
All that being said, no official announcement on an extension has been made. Most recently, the Education Department's Under Secretary, James Kvaal, said in an interview that payments were still expected to restart after August.
Either way, Kantrowitz said, payments will eventually resume.
"Borrowers should start getting ready now," he said.
Here are three steps borrowers might consider taking now.
Borrowers should pretend that payments have already begun and direct their usual monthly student loan payment to a savings account, Kantrowitz said. Doing so will make the eventual resumption of payments a little less painful.
Some banks have started raising the interest rates they're offering on people's savings, and it's worth shopping around for the best deal, experts say.
using calculator
Witthaya Prasongsin | Moment | Getty Images
Many people's lives have been changed by the pandemic.
If your circumstances look different than they did more than two years ago, it may make sense to review the different student loan payment plans to find the one that best fits your current situation.
The government's income-driven repayment programs, for instance, cap your monthly bill at a share of your discretionary income. Some payments wind up being as little as $0, and any remaining debt after 20 years or 25 years is supposed to be forgiven. The standard repayment plan, meanwhile, may come with a larger monthly payment, but if you can afford it, it allows you to pay off your debt in just 10 years.
Use one of the calculators at Studentaid.gov or Freestudentloanadvice.org to compare repayment plans, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.
To beat the last-minute rush, contact the loan servicer now if you'll need a deferment, forbearance or an income-driven repayment plan.
Mark Kantrowitz
higher education expert
If you're unemployed or are dealing with another financial hardship, you'll have options when payments resume. You can put in a request for an economic hardship or unemployment deferment. Those are the ideal ways to postpone your federal student loan payments, because interest doesn't accrue under them.
If you don't qualify for either, though, you can use a forbearance to continue suspending your bills. Just keep in mind that interest will rack up and your balance will be larger — possibly much larger — when you resume paying.
"To beat the last-minute rush, contact the loan servicer now if you'll need a deferment, forbearance or an income-driven repayment plan — unless you happen to like being on infinite hold with your loan servicer," Kantrowitz said.
Three companies that serviced federal student loans — Navient, the Pennsylvania Higher Education Assistance Agency, also known as FedLoan, and Granite State — all have announced they'll be ending their relationship with the Education Department.
As a result, around 16 million borrowers will have a different company to deal with by the time payments resume, or not long after, according to Kantrowitz.
For a smooth transition, double-check that your servicer has your current contact information, so you receive all the notices about the upcoming change, Kantrowitz said.
Affected borrowers should get multiple notices about their new servicer, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.
If you mistakenly send a payment to your old servicer, the money should be forwarded to your new one, Buchanan said.
Published Wed, Mar 30 2022 10:34 AM EDTUpdated Wed, Mar 30 2022 2:11 PM EDT
- Despite signs that the pause on student loans will be extended again, no official announcement has been made.
- As a result, experts say borrowers should be prepared to start paying come May.
- Here are the steps they say you should take to get ready.
Lightspeedshutter | Istock | Getty Images
There are a number of reasons to believe that the Biden administration will extend the payment pause for student loan borrowers beyond the current expiration date in May.
The White House has already hinted it might do so, and student loan servicers have been told to hold off on sending out notices about the bills resuming to the tens of millions of Americans with the debt.
Yet with payments set to start up again in just around a month, there's been no official announcement on an extension.
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Given all the uncertainty, experts recommend that borrowers be prepared for life with student loans again. Even if there is an extension, after all, the bills will likely restart eventually.
Here are the steps they say you should take to get ready.
Three companies that serviced federal student loans — Navient, the Pennsylvania Higher Education Assistance Agency (also known as FedLoan) and Granite State — all recently announced that they'd be ending their relationship with the government.
As a result, around 16 million borrowers will have a different company to deal with by the time payments resume, or not long after, according to higher education expert Mark Kantrowitz.
Double-check that your servicer has your current contact information, so that you receive all the notices about the upcoming change, Kantrowitz said.
Impacted borrowers should get multiple notices, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.
Come May, if you mistakenly send a payment to your old servicer, the money should be forwarded to your new one, Buchanan said.
If you remain unemployed or are dealing with another financial hardship because of the Covid pandemic, you'll have options come May.
First, put in a request for the economic hardship or the unemployment deferment, experts say. Those are the ideal ways to postpone your federal student loan payments because interest doesn't accrue under them.
If you don't qualify for either, though, you can use a forbearance to continue suspending your bills. Just keep in mind that interest will rack up and your balance will be larger — sometimes much larger — when you resume paying.
If you expect your struggles to last a while, it may make sense to enroll in an income-driven repayment plan.
These programs aim to make borrowers' payments more affordable by capping their monthly bills at a percentage of their discretionary income and forgiving any of their remaining debt after 20 years or 25 years.
Many people's lives have been changed by the pandemic.
If your circumstances look different than they did more than two years ago, it may make sense to review the payment plans available to you and find one that's the best fit for your current situation.
In the meantime, the law has also changed.
Student loan forgiveness is now tax-free until at least 2025, thanks to a provision included in the $1.9 trillion federal coronavirus stimulus package that President Joe Biden signed into law in March of last year. That policy will likely become permanent.
That may make income-driven repayment plans more appealing, since they often come with lower monthly bills and borrowers will likely no longer be hit with a massive tax bill at the end of their 20 years or 25 years of payments.
But if you can afford it, the standard repayment plan is just 10 years.
To calculate how much your monthly bill would be under different plans, use one of the calculators at Studentaid.gov or Freestudentloanadvice.org, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.
If you do decide to change your repayment plan, Mayotte recommends submitting that application to do so with your servicer now.
"I have significant concerns that there will be some big servicing delays," Mayotte said.
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