COVID Student Loan Repayment Pause Ends: What Borrowers Need to Do Now | Education

Borrowers need to know and do some key things before the pandemic-related pause in federal student loan repayments ends this year and payments resume in January 2023.

Student loan and finance experts advise taking the following steps immediately:

“Consider repaying any accrued interest that could be capitalized before the loan returns to an active repayment state,” Alex Ricci, director of government affairs and communications at the Education Finance Council, a DC-based national trade association representing non-profit and state higher education institutions. education funding organizations, wrote in an email. “If possible, start setting aside a portion of each paycheck to give yourself some financial leeway when repayment picks up.”

The administrative forbearance period began in March 2020. The original coronavirus emergency relief bill, the CARES Act, was signed into law by former President Donald Trump on March 27, 2020. He temporarily suspended involuntary payments and collections on most student loans held by the federal government through September. 30. 2020.

The hiatus has been extended seven times, the last five times by President Joe Biden, whose Department of Education has indicated the current extension will be the last. Biden also announced in August that up to $10,000 in federal student loan debt will be forgiven for eligible borrowers, and up to $20,000 will be forgiven for eligible borrowers who received a Pell Grant in college.

The millions of borrowers who will still have federal student loan debt in January should start planning for their repayment immediately, recommends Shelton W. Dotson IV, financial adviser at Northwestern Mutual in Texas.

“Definitely have a conversation with your repair person, whether online, on a chat message, or on the phone,” says Dotson.

“Before repayment begins, I would recommend talking to the loan manager so they can at least see what payment strategy may work best,” he says. “Make sure you know what your payments will look like. People’s payments before the pandemic will be very different from their payments after the pandemic, more than likely. … Of course, no interest was accrued, but this previous plan may be different with a new business.”

Students who have taken out federal student loans more than once may have two or more servicers, and it’s important to communicate with each, experts say.

Borrowers with available savings should ask their manager if there are other options for making a lump sum payment on the principal balance of a loan, Ricci says.

“Reducing your outstanding principal will help you repay your loans faster,” he points out. “For borrowers who are worried about paying monthly installments, ask your service agent about the different repayment plans you may be eligible for to reduce your monthly billing statement. For borrowers looking to qualify for the PSLF (Public Loan Forgiveness Service), make sure you are enrolled in an income-based repayment plan that meets your needs.

About 45 million Americans of various ages owe federal student loans, but the expert advice applies to all generations. Jean Chatzky, financial adviser and founder and CEO of multimedia company HerMoney, offers advice in a video for the American Association of Retired Persons, commonly referred to as AARP.

“First, mark the (payment) date on your calendar,” she advises. “Next, look for notifications from your loan officer. You should hear from your servicer 30 days before your first payment to let you know exactly when your payments will resume. But as we get closer, if you still haven’t haven’t heard from your repairman, so it’s best to contact them directly to get your new schedule.And if you’ve moved during the pandemic like so many people have, take a moment to update your address and your contact information.

Borrowers would be wise to start saving money now for future monthly student loan payments, experts say.

“If they have disposable income, start putting money aside,” Dotson says. “It would be a great way for them to start planning for that amount to come out of their monthly budget already. They can at least put it in an account.”

Ricci recommends making sure you’re signed up for a repayment plan that fits your monthly budget and long-term goals.

“This is a good step for all borrowers, but it is especially important for borrowers who have a new loan manager, who are working on canceling public service loans or who were enrolled in a repayment plan. based on income before payment break,” it says. “Any change in income you’ve experienced during the pandemic could have a huge impact on how much you owe each month.”

Dotson offers another suggestion for borrowers to get on the right track quickly: “A month or two before payments resume, set up an automatic payment and make sure everything is settled.”

Ricci notes at least one financial benefit for federal student loan borrowers who have autopay set up. “Federal student loans are eligible for a 0.25% interest rate reduction once a borrower signs up for automatic payments,” he says. “This could save individuals hundreds of dollars over the loan repayment term.”

For borrowers struggling financially and worried about not being able to meet the payments, experts recommend contacting the loan officer and asking about income-adjusted repayment plans. Income-based repayment plans cap monthly payments based on your income and family size, which can allow for smaller payments.

Some borrowers may find that under an IDR plan, they are potentially eligible for no payment or a very small, more manageable amount. However, a trade-off is that such a plan typically extends the repayment term, costing more in the long run due to interest, experts note.

Before considering an IDR plan, borrowers should know if they qualify for the time-limited exemption from the PSLF rules that ends Oct. 31, 2022, according to the Biden administration. Student Debt Relief Programand forgiveness of up to $20,000 in federal student loans under this plan for eligible borrowers.

Additionally, “if you were in default before the break, you are likely eligible for the ‘fresh start’ program. This program allows borrowers to get back into good standing,” Michele Streeter Shepard, senior director of college affordability at the ‘Institute for College Access & Success, a nonprofit organization that conducts research, analysis, and advocacy to make higher education more available, affordable, and equitable, wrote in an email.

Dotson suggests checking with your employer to see if there are any benefits for student loan repayment or to help pay for education. “Some jobs have a payback plan if you’ve been there for a while,” he says. “Some companies are willing to help you with that.”

Aside from some federal programs that offer federal student loan forgiveness after 10 years of qualifying payments, it is extremely difficult to get rid of federal student loans without repaying them in full, even in the event of bankruptcy. Dotson recommends that borrowers who are already bankrupt seek relief through the court that handled their bankruptcy case.

“It depends on when that debt was incurred,” Dotson says.

If a borrower has ever filed for bankruptcy for a reason other than a student loan, “that’s one thing,” he says. “But you don’t want to declare bankruptcy on student loans, because the government and its services are usually flexible. They could just take a percentage or use income-based planning to deal with it.”

An IDR plan may be preferable for borrowers whose jobs are PSLF-eligible, Dotson says. “For others who don’t get any forgiveness, it might be best to go with a standard plan,” he says.

Borrowers currently under an IDR plan should check their income recertification date, which has been postponed as part of the repayment pause, Shepard says, adding that borrowers will be notified of their new recertification date before it is due. time to recertify.

Additionally, if income has changed significantly for these borrowers, they should update their information with their loan manager “and get a new payment amount based on their current income,” Shepard says. This can be done at StudentAid.gov/IDR.

“After the pause ends, monthly payments will resume at this new amount,” Shepard says.

Borrowers already in an IDR plan who have recently married or had a child can also request that their payment be recalculated.

“Income-based repayment plans are the best option for a distressed borrower for long-term relief because you never have to pay more than 10 or 15 percent of your discretionary income,” Ricci says. “Borrowers experiencing short-term or temporary setbacks may be able to access an economic hardship deferral that will allow them to continue to defer monthly payments and interest accrual.

However, asking for another deferral or forbearance should be a last resort, experts say, because interest will continue to accrue on your student loans and you’ll end up owing more money over time.

Details and updates on student loan repayment, forbearance and other information are available at StudentAid.gov.