Editor’s Note: Since the writing of this article, the Biden administration has extended the pause on federal student loan repayment through December 31, 2022.
After a break of over two years, borrowers will restart federal student loan payments. Well before September arrives, it would be smart to have a strategy for repayment.
In March 2020, as the Covid-19 pandemic struck, the White House ordered the suspension of payments, interest, and collections on most federally held student loans. The most recent extension of the moratorium for more than 40 million borrowers takes it through August 31, 2022.
It won’t be an easy transition for some. A surveyconducted for Pew Charitable Trusts in spring 2021 found that 67% of borrowers said it would be difficult to afford their student loan payments if they resumed the next month. And about half weren’t aware of when they would be required to resume payments.
The thought of new bills doesn’t thrill anyone, but getting on top of repaying your loans may reduce anxiety. Federal Student Aid, an office of the U.S. Department of Education, recently released tips on how to prepare for student loan repayment. There are other factors to analyze as well.
Update Contact Info and Prepare for Your Bills
To prevent any delays and smooth out the process, make sure your contact information is up to date in your profile on your loan servicer’s website and in your StudentAid.gov profile.
Once the pause is over, expect a billing statement from your loan servicer. You will get the stats on your due date, interest, and payment amount. For most, a payment will be due in 21 days. If you participate in autopay, make sure that is set up with your latest bank info.
If you have questions that can’t be answered online, you can call 800-4-FED-AID (800-433-3243).
Find the Best Plan for Your Income
Apart from the hardships caused by Covid-19, the federal government has made exceptions and provisions for borrowers in recent years. You may want to see if you qualify for any of the programs.
The Department of Education offers income-based repayment, which also considers family size (both factors must be recertified every year).
Almost all federal student loans are eligible for at least one of the four plans:
• Pay As You Earn
• Revised Pay As You Earn
• Income-Based Repayment Plan
• Income-Contingent Repayment Plan
For the first three plans, payments are generally 10% percent of your discretionary income. The plans stretch payments over 20 or 25 years and forgive any remaining balance. (Anyone enrolled in a plan and the Public Service Loan Forgiveness Program may qualify for forgiveness of any remaining balance after just 10 years of payments while working full time for a qualifying employer.)
If you are already in an income-driven repayment plan but your income changed recently, you can update your information to see if you can get a new, lower payment amount.
Explore Other Federal Programs
Do you work for a nonprofit? Is your job in the public sector? Borrowers who are part of the Public Service Loan Forgiveness Program are to receive credit for suspended payments if they have a federal Direct Loan and work a minimum 30-hour week for a qualifying employer.
Other news to be aware of: This year, President Joe Biden discharged loans totaling $9.5 billion for 563,000 people, including defrauded and totally disabled borrowers. Interest was also waived retroactively for more than 47,000 current and former active-duty service members deployed to areas that qualify them for imminent danger or hostile-fire pay.
If any of these categories apply to you, make sure you are obtaining debt relief.
Restart Payments Early
Some borrowers in a position to resume student loan payments have already done so, or continued to make monthly payments even though it wasn’t required. This move allowed them to take advantage of 0% interest and likely pay down the principal on their student loans.
It’s not too late to take action. If you decide to resume payments, contact your loan servicer or go to its website to restart payments. It may also be a good idea to ensure that any payments made during the relief period are going to the principal of the loan.
Consider Consolidating Loans
Consolidation allows borrowers with more than one federal student loan to combine them into a single loan with a fixed interest rate that is the average of the rates of the loans being consolidated (rounded up to the nearest one-eighth of a percentage point).
Borrowers may see a change in monthly payments when they consolidate their loans into a Direct Consolidation Loan, but one of the biggest benefits is convenience. Instead of multiple loans to track each month and multiple payments, there is one payment a month, at a fixed interest rate.
The loan term also may be elongated, to up to 30 years, but a longer term means making more payments and paying more in interest than would be the case if you hadn’t consolidated. It’s important for borrowers to consider the length and interest paid over time, as well as the monthly payment, to assess whether consolidation makes sense for their financial goals.
Explore Student Loan Refinancing
If you refinance your student loans with a private lender, a new, private loan — ideally with a lower rate — will pay off your original loans. Refinancing can be a good choice for working graduates who have higher-interest Direct Unsubsidized Loans, Graduate PLUS loans, or private loans, since interest rates are at near-historic lows.
One important thing to note is that refinancing federal student loans means the loans are no longer subject to federal benefits like income-driven repayment, Public Service Loan Forgiveness, or federal forbearance.
Also, it’s important to read the fine print and compare offers among lenders.
Comparing options, plugging in numbers, and weighing different scenarios based on your current financial picture and your goals may be helpful in assessing whether refinancing is a good option for you.
Is Broad Loan Forgiveness a Possibility?
Some holders of student debt may hesitate to make decisions on next steps because of headlines about Congress or the president possibly canceling student debt, which has reached nearly $1.6 trillion in federal loans and $136.3 billion in private loans.
In September 2021, Senate Majority Leader Chuck Schumer held a summit with other national leaders to urge Biden to cancel up to $50,000 in student loan debt for all borrowers through executive action.
But wiping student debt off the books, in part or whole, is a controversial topic. Proposals include erasure of all student debt; student loan relief for private student loans that is commensurate with federal student loans; cancellation of federal student loan debt only for borrowers who earn up to $125,000; and presidential approval of $10,000 in individual forgiveness, likely just for federal student loans.
The bottom line: There’s no mainstream legislative or executive plan to cancel all student loan debt, so as the loan repayment date approaches, it might be better to have a game plan than to hold your breath.
While there may be a lot up in the air, existing student loan debt isn’t likely to vanish. Understanding the repayment options available can help borrowers strategize to handle their debt when the federal payment and interest pause ends.
Is the chance at a lower interest rate intriguing? SoFi refinances private and federal student loans with low fixed or variable rates, flexible terms, and no fees. Members get access to local networking events, our online community, and more — at no additional cost.
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SoFi Student Loan Refinance
If you are looking to refinance federal student loans, please be aware that the White House has announced up to $20,000 of student loan forgiveness for Pell Grant recipients and $10,000 for qualifying borrowers whose student loans are federally held. Additionally, the federal student loan payment pause and interest holiday has been extended beyond December 31, 2022. Please carefully consider these changes before refinancing federally held loans with SoFi, since the amount or portion of your federal student debt that you refinance will no longer qualify for the federal loan payment suspension, interest waiver, or any other current or future benefits applicable to federal loans. If you qualify for federal student loan forgiveness and still wish to refinance, leave unrefinanced the amount you expect to be forgiven to receive your federal benefit.
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Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
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