What to Do If You Can’t Make Your Monthly Payments When Federal Student Loan Relief Ends
Editor's Note: Since the writing of this article, the federal student loan payment pause has been extended into 2023 as the Supreme Court decides whether the Biden-Harris Administration’s Student Debt Relief Program can proceed. The U.S. Department of Education announced loan repayments may resume as late as 60 days after June 30, 2023.
When the federal student loan payment pause ends after Aug. 31, 2022, people will return to the reality they experienced before March 2020: making regular loan payments.
But just as Covid-19 upended daily life for most of us, student loans are being buffeted by many forces: the possibility of loan forgiveness, reduced interest rates, and more.
Resuming payments will not necessarily be a hardship for some, but maybe there isn’t a spare dollar in your budget for your federal student loans and you need ideas before that first payment is due.
Before the federal student loan payment holiday ends, the smart plan of action is to learn as much as possible about the news affecting these loans and to prepare to resume payments in September 2022.
What’s the Deal With Public Service Loan Forgiveness?
If you are worried about resuming your federal student loan payments, can loan forgiveness come to the rescue?
The latest development on that front is the Oct. 6 announcement that the Department of Education is overhauling the Public Student Loan Forgiveness (PSLF) Program “for a limited time as a result of the Covid-19 national emergency.”
The program was launched in 2007 to wipe away residual Direct Loan debt of people who work for a government entity or nonprofit organization and make 120 on-time loan payments. But the program was a notorious failure because about 98% of those who applied for loan forgiveness were rejected on various technicalities.
The Education Department has changed the rules so that 22,000 borrowers are now eligible for $1.7 billion in loan forgiveness without any further action on their part. Another 27,000 could qualify for $2.8 billion in forgiveness if they certify additional periods of employment.
“Borrowers who devote a decade of their lives to public service should be able to rely on the promise of Public Service Loan Forgiveness,” U.S. Secretary of Education Miguel Cardona said in a statement.
Borrowers who have made payments on any kind of federal student loan and worked full time for a qualifying employer can fill out a limited waiver and consolidate any non-Direct Loans to have all of their payments count toward PSLF.
The window for this new program is open through October 2022.
What About Broad Student Loan Forgiveness?
Rumors keep flying that President Joe Biden will wipe out federal student loan debt across the board. Biden campaigned for president on a promise of $10,000 in student loan forgiveness, although Democratic leaders such as Senate Majority Leader Chuck Schumer are pushing for $50,000.
Neither amount is a given.
In February 2021, when asked about canceling $50,000 in federal loan debt, Biden said, “I will not make that happen.” He hasn’t said definitively what he would do about forgiving $10,000.
Early in 2021, Biden requested advice from the Departments of Education and Justice about whether the president has the legal authority to cancel student loan debt. The policy memo on this has been expected since April but has not materialized.
On Oct. 8, Rep. Ilhan Omar and 14 other progressive Democrats sent a letter to Biden and Cardona urging them to release the memo by Oct. 22.
“Forty-five million student debtors collectively owe $1.8 trillion of student debt, a sum almost equivalent to the $1.9 trillion the world’s billionaires made in 2020 alone,” the lawmakers wrote.
None of the student loan cancellation proposals or actions so far apply to private student loan debt.
Getting Ready for Life After the Pause
This is a good time to go to your loan servicer ’s website and make sure that your address, email, and all other administrative information are up to date. Once the servicer sends your bills in 2022, you want the process to go smoothly.
Several federal loan servicers have announced that they will no longer be performing this function. The companies include FedLoan Servicing, Navient, and Granite State. The Department of Education is overseeing the transition from those companies to new ones.
If your circumstances are such that you don’t expect to have any money to go toward your student loans after the payment holiday ends, now is the time to see what help is available before you find yourself on the edge of a financial cliff.
One option is to look into income-driven repayment . If your outstanding federal student loan debt represents a significant portion of your income, one of the plans may apply.
Other ideas are federal deferment, forbearance, and loan consolidation. Studentaid.gov has details.
Finally, refinancing could benefit some borrowers.
Is the Time Right to Refinance Student Loans?
Some people with federal student loans may have high interest rates from several years ago. Refinancing with a private lender could result in a lower rate.
The average rates on five- and 10-year refinanced loans have moved slightly from what many are calling an all-time low.
For borrowers interested in paying off their student loans faster, five-year variable-rate loans were averaging 2.57% in early October, according to data released by the Credible marketplace.
You should know, though, that if federal student loans are refinanced into a private student loan, federal loan forgiveness and income-driven repayment plans no longer apply.
With the federal student loan payment pause set to end, now is the time to learn about loan forgiveness programs, income-driven repayment plans, and refinancing with a private lender.
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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