Student Loan Pause: What Every Borrower Needs to Know
After a number of extensions, the current payment moratorium on student loans is scheduled to end on August 31, 2022. As a result, millions of federal student loan borrowers will be required to make monthly interest-bearing payments for the first time since March 2020 in four months. the United States According to the Department of Education’s most current news release, the extension was put in place in response to the COVID-19 pandemic’s economic effects. The Department of Education had previously said that the restraint period would end on May 1.
Why is the Student Loan Pause Until August?
Since March 2020, there have been six further extensions to the student loan payment moratorium, each of which was granted because of COVID-19 pandemic-related economic concerns. President Biden “has made clear the continuing necessity to respond to the pandemic and its economic implications, as well as to allow for the prudent phase-down of pandemic relief,” according to the press statement, even though the economy is rebounding.
According to the press release, “the extension will provide debtors more time to plan for the resumption of payments, lowering the risk of delinquency and defaults following commencement.” The government also declared that it would permit federal borrowers who have defaulted on loans or have delinquent payments to reenter payments in good standing.
In keeping with prior extensions, the administration has pledged to use this extra time to enhance federal servicer liability and omission, which has been one of its top priorities since 2022 after numerous revelations of federal loan malfeasance.
How Can Borrowers Take Advantage of the Student Loan Pause?
You have three more months to get ready for your federal student loan payments to resume if you owe money on them.
On Wednesday, President Joe Biden declared that his government would once more extend the student loan payments moratorium, this time to May 1, 2022. Previously, payments were scheduled to start up again on January 31, 2022, in what the administration had previously referred to as the final prolongation.
This means that interest rates will stay at 0% until the spring of next year when payments will resume. According to a survey conducted earlier this year by The Pew Charitable Trusts, two-thirds of borrowers indicated it would be challenging for them to sustain payments if they recommence the next month.
Given this most recent development, it might be a good idea to reconsider your student loan repayment plan right now. Although every person’s circumstances are unique, here are some things you should do in light of the continuation of the student loan payment suspension.
If you’ve lost a job or seen your income drop
Give yourself some breathing room during this period so that you can attend to other financial issues. Maintain your emphasis on paying your basic costs, such as rent or mortgage payments, utilities, groceries, transportation, and the like, even if you’re unemployed or your income has dropped over the past year.
Applying for income-driven repayment is another option you have to reduce your monthly payment when it’s due. The monthly payment under an income-driven repayment plan is determined by the size of your family and a portion of your discretionary income. If you earn less than 150 percent of the federal poverty level, your payments might be as low as $0.
If you are still employed or making money
Create an emergency fund first, if you haven’t already. Try to save three to six months’ worth of spending, but don’t become discouraged if you believe that saving that much is now unachievable. Start small, then go from there. Next, focus on paying off high-interest debt – these tactics can help you do that.
Put your money in a savings account and then make a lump sum payment just before payments resume if you want to pay off your student loans during this zero percent interest period.
If your student loan payments are past due
Try to refinance your loans as soon as you can because once the extension expires, all collection efforts will start again. Federal loan default occurs when a payment is 270 days overdue; as a result, your loans are sent to collections and you risk having your earnings and tax refunds taken as well as having your credit harmed.
You must get in touch with your loan servicer, complete an application, and adhere to a set procedure in order to reinstate your student loans and escape default.
If loan rehabilitation isn’t an option for you right now, there are other forms of COVID-19 relief, like further deferment and forbearance, that may allow you more time to recover. Examples of temporary suspensions of your student loan payments include jobless deferral and economic hardship deferment. But these options should be your final resort.
Will It Have Another Extension After August?
The Education Department is less likely to keep extending the forbearance period as the economy improves. Federal student loan borrowers should get ready to start making monthly payments again in September even if another extension is still conceivable.
Your loan servicer will send you a billing statement at least 21 days before your first payment is due, and you might get more notifications about the forbearance period’s conclusion before that. You can make interest-free payments during the last few months of the payment suspension, concentrate on paying off your private student loans or pay off high-interest debt like credit card debt.
However, there are choices available if you’re worried about having to start paying again in September. If you’re looking for a lower monthly payment, think about signing up for an income-driven repayment plan or Public Service Loan Forgiveness, which has momentarily loosened its eligibility qualifications through October 31, or submit an application for federal forbearance if you don’t have the funds to begin making payments. If you can refinance with a private lender at a lesser interest rate and you aren’t concerned about losing federal advantages, you might want to consider doing so.