Find Out If Youre On The Best Repayment Plan For You
Your situation may have changed during the pandemic. Now is a great time to think about whether youre on the best repayment plan for you. The U.S. Department of Education offers a variety of repayment plans. If youre struggling, consider an income-driven repayment plan.
Income-driven plans calculate your payments based on your income and family size. Under an income-driven plan, payments may be as low as $0 per month. Income-driven plans also offer the possibility of loan forgiveness after 20 or 25 years of qualifying payments and can provide valuable interest subsidies. Use the U.S. Department of Educations Loan Simulator to explore your payment options.
There Have Been Several Student Loan Pause Extensions The Current End Date For The Student Loan Pause Is August 31 2022
8 things you can do to prepare for the end of the student loan pause.
The payment freeze on student loan payments prompted by the COVID-19 pandemic is set to come to an end on August 31, 2022. And when it does, borrowers will need to plan how theyll resume making payments, and what options they have when it comes to handling their college loan debt.
Some will choose to refinance their student loans, as rates remain pretty low for qualified borrowers . That said, refinancing a federal student loan into a private one will strip you of federal protections like income-driven repayment options and federal loan forgiveness, so its important to consider the pros and cons before you refinance.
Others will look into income-driven repayment plans, ask for a forbearance, or consider loan consolidation. And still others will simply create a budget and get down to business with aggressively paying off their loans. These options are just the beginning, and this article will go into what exactly happened with the student loan pause, and then how you can prepare for its ending when you have to begin repaying your loans. Heres what you need to know now.
Impact of Bidens latest student loan extension on the student debt crisis
Then the Covid-19 pandemic hit.
While theres always the chance that the payment freeze might once again be extended, borrowers should plan to start making regular loan payments again starting Sept. 1. Here is what borrowers should consider:
Sock away your cash
Know Your Current Financial Picture
Before getting ready to pay off your student loans, it’s important to understand where you stand financially. List your income, your debts and other responsibilities you have.
“While you need to make the monthly minimum payments on all of your debts , listing them out will help you to identify and prioritize which debts you may want to tackle first,” said Lauren Anastasio, a certified financial planner at SoFi.
There are budget apps available on iOS and Android that can help with understanding your current financial status. Once you understand where your money from each paycheck needs to go, then you can start to figure out the best way to pay off your loans.
One option is to focus on whatever account has the lowest balance while paying the minimum on the other accounts. This is known as the “snowball method.” The goal is to pay off accounts as quickly as possible.
Or there’s the “avalanche method,” where the focus is on paying off debt with the highest interest rate. The goal here is to save the most money on interest.
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I’ve Been Making Payments During The Pause Can I Continue To Do So
Absolutely. Continuing to make payments during the payment pause could help you pay down your loan balance more quickly. The full amount of apayment will be applied to your principal balance once you’ve paid all interest that accrued beforeMarch 13, 2020. There is no penalty for paying less than your regular monthly payment amount during the payment pause.
What If I Want To Continue Making Payments
Any payments you make during the forbearance period will be applied to principal once all the interest that accrued before March 13, 2020 and any fees are paid.
Making any voluntary payments right now will help you pay down your loan balance faster, but Farnoosh Torabi, editor-at-large of personal finance at CNET and host of the podcast So Money, says you shouldnt worry about paying down your student loans too aggressively this year. You should instead focus on building an emergency fund or paying off high-interest debt.
Even if were to believe that the loans will come due again in early 2021, I dont recommend working extra hard to erase your government loans this year. Pay the minimums, as needed, but not a penny more, Torabi writes.
If youre determined to pay down your student loans right now, these strategies can help you.
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What Student Loan Protections Are Extended
This last update extends the following student loan relief measures:
- Payment suspension: Federal loan payments are suspended, so borrowers will not have to make payments until February 2022.
- Interest Waiver: Interest rates on federal loans are set at 0% for the duration of the emergency relief period. No interest charges will accrue until February 2022.
- Collections activity: If you defaulted on your student loans and theyre in collections, the CARES Act also suspended all collections activities. Collection agencies cannot call you or send billing statements.
Student Loan Payments Now Paused Until 202: Everything To Know About The Latest Extension
President Biden says this most recent continuance of the student loan payment pause will be its final extension.
How To writer and editor
Peter is a writer and editor for the CNET How-To team. He has been covering technology, software, finance, sports and video games since working for @Home Network and Excite in the 1990s. Peter managed reviews and listings for Download.com during the 2000s, and is passionate about software and no-nonsense advice for creators, consumers and investors.
In addition to forgiving up to $20,000 in student debt for qualified borrowers, President Joe Biden announced he was extending the current moratorium on student loan payments and interest until Jan. 1, 2023.
Student loan payments have been paused since March 2020, when the CARES Act was passed by Congress. They were set to resume in Sept. 2020 but the freeze was extended three times by former President Donald Trump and now a total of four more times by Biden.Here’s what you need to know about federal student loan payments, including which loans are paused, what happens to borrowers who are in default, and whether there will be any further student loan payment pauses.
For more on student debt, find out if you qualify for a public student loan forgiveness waiver, if you should keep paying off your loan during the pause, and the benefits of refinancing your student loan.
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Whats The Earliest My Payment Could Be Due
Student loan payments will resume at the end of January, but thats not necessarily when your student loan payments are due. Look out for a billing statement or some notice from your loan servicer in the next few months to find out your specific due date. The Department of Education suggests visiting its FAQ page regularly between now and then for any general updates.
Bring Your Contact Information Up
If you’ve moved or changed your email address or phone number since March 2020, update your contact information onyour account. Visit your Welcome page and select the Manage Profile sectionto confirm your address, email address, and phone number are correct. If your name has changed, pleasegive us a call.
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If You Won’t Be Ready To Start Making Payments Call Your Student Loan Servicer Or Lender As Soon As Possible
If you’re uncertain of your financial situation, making plans with your student loan servicer should be on your to-do list.
Calling your student loan servicer is the best way to get in touch with someone about your federal student loan. All federal student loans are assigned to one of 10 companies that collect payments and offer customer service for federal student loans. To find your servicer, log into your Federal Student Aid account or call the Federal Student Aid Information Center at 1-800-433-3243.
While this forbearance only applies to federal student loan borrowers, some private student loan lenders are working with customers to temporarily suspend payments. Call your lender and explain your situation, and find out what options are available. Your options may vary based on which lender you’re working with.
For federal student loan borrowers, starting to plan for payments sooner rather than later will also give you valuable time to save for later payments if you can’t suspend your payments later. Pausing other loan payments and bills could also free up cash flow. Keeping up with your student loan, if possible, can help you avoid a damaged credit score, or falling into delinquency.
Editor’s note: This post has been updated to reflect the fact that federal student loan forbearance has been extended through January 2022, according to a statement made by Education Sec. Miguel Cardona on Friday, August 6. Previously, it was set to expire on September 30, 2021.
Review Your Budget And Make A Plan
Now is a great opportunity to review your finances and make a plan for resuming payments. You may need to cut spending in certain areas to make sure you have room in your budget for when payment is due or pull from your emergency fund. Even though the forbearance period has been extended, its still a good idea to take this time to prepare for the future. Sooner or later, your monthly payments will start again and its better to be ahead of the curve.
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Will There Be Another Extension
At this point, it doesnt look likely that the Education Department will extend the forbearance period for the eighth time, especially due to the mass forgiveness measure. While another extension is not impossible, federal student loan borrowers should prepare to resume making regularly scheduled payments in January and be on the lookout for the forgiveness application thats expected to be released in October.
Youll receive a billing statement from your loan servicer at least 21 days before your first payment is due, and you may receive additional communication about the end of the forbearance period before that. You can use these final few months of the payment pause to make interest-free payments, focus on private student loan payments or pay down high-interest debt, like credit card debt.
However, if youre concerned about making payments again in January, you have options. If youre looking for a lower monthly payment, consider enrolling in an income-driven repayment plan or Public Service Loan Forgiveness which has temporarily loosened its eligibility requirements through Oct. 31 or apply for federal forbearance if you dont have the resources to start up payments. You can also think about refinancing with a private lender if you can get a lower interest rate and you arent worried about losing federal benefits.
Research Alternatives If You Cant Afford Payments
If you find that you canât afford your monthly loan payments, consider programs that could help. You might be eligible for an income-driven repayment plan. There are five of these options, which reduce your monthly payments to a percentage of your income. After making regular payments for 20 or 25 years , any remaining loan balance can be forgiven.
If youâre experiencing a short-term hardship that makes it difficult to afford your loans, you might also consider another form of deferment or forbearance once payments restart. Youâll have to meet certain requirements to qualify, but you could potentially pause your loan payments for a limited period of time.
However, use this option sparingly. Unlike the Covid-19 forbearance thatâs currently in effect, most loans will accrue interest during periods of standard deferment or forbearance. That means your debt will increase, youâll pay more in interest and it will take you longer to pay off.
Not sure where to start? Use the Federal Student Aid Loan Simulator to find an option that could help.
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Federal Student Loan Forbearance
Anyone who wants to remove the forbearance from their student loan to make payments as usual will need to contact their loan servicer to continue payments.
Forbearance does not apply to some borrowers of private student loan borrowers, or anyone who has refinanced to private loans from federal student loans.
Watch For Notices From Us
Great Lakes and Federal Student Aid have sent, and will continue to send, communications to help get you prepared forrepayment. Read these notices carefully, as they have important tips about what to expect.
As the end of the payment pause grows nearer, we will send you a billing statement about three weeks beforeyour due date. If you previously had a bill pay service set up with your bank, you may have to set that backup again. Refer to “I previously made monthly payments using a bill pay service. How do I continue usingthat payment method when repayment starts?” in theFAQs below.
In addition, if you were previously using Auto Pay to make your monthly payments before March 13, 2020, and you haven’t confirmed your enrollment, you’ll still need to confirm by logging in to your mygreatlakes.org account, selecting Payments, then selecting Auto Pay.
If you haven’t already, you must confirm that you want to remain in Auto Pay for your payments to be madeusing that method. If you do not elect to stay enrolled in Auto Pay, it willbe cancelled, you’ll lose the 0.25% reduction on your interest rate, and you’ll need to make other paymentarrangements when the COVID-19 payment pause ends. Log in to yourmygreatlakes.org account, and you’ll beprompted to confirm enrollment in Auto Pay.
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If You Have Ffel Loans
If you have Federal Family Education Loans , you are entitled to receive the no-interest forbearance only if the government owns the loans. This wont be most FFEL borrowers most of the loans from the now-defunct program are commercially held.
You can find out who owns your loans by logging in to studentaid.gov using your FSA ID.
The only way to get the forbearance for commercially held FFEL loans is to consolidate your debt into a new direct loan. But there are downsides to consolidation:
Your repayment term will be extended.
Your interest rate will increase slightly.
Any unpaid interest will capitalize and be added to the total amount you owe.
Temporary interest-free payments may not be worth those additional long-term costs.
Plus, if youre already making payments on an income based repayment plan, those previous payments will no longer count toward forgiveness. Youll have to start all over.
Consolidation can make sense if you have FFEL loans and want to qualify for Public Service Loan Forgiveness. Otherwise, stick with your current loans.
If you’ve experienced a change in income, you can enroll in IBR or recertify early, if you’re already on this plan. IBR will still take into account your spouses income. Your loans are also eligible for unemployment deferment, which may make sense if youve lost your job but expect to start working again soon.
Why The Student Loan Crisis Matters
Student debt can affect your financial and personal life. According to one source, even declaring bankruptcy may not automatically erase your student-related debt. As a result, student loans can potentially lower your credit score, limit your ability to buy a home, and decrease your overall net worth.
The financial stress may also lead you to rethink your career trajectory. It could even affect your ability to get a job, especially if you’re looking for a position in the financial industry. Potential employers that do a credit check may view late loan payments unfavorably.
Advocates for student loan borrowers want the Biden administration to extend the forbearance. In a June 24 letter to the president, about 125 consumer rights organizations and civil rights groups described student loan forbearance as “one of the most important investments the federal government has made in Americans’ financial lives in a generation a recognition that the inadequacies of the existing student loan safety net could not protect families in the midst of an economic and public health crisis.”
As a result, “for the first time, millions of student loan borrowers find themselves with the financial resources they need to make ends meet each month. Millions of others have been able to use this financial lifeline to pay down other debts, save for down payments on homes, or plan for retirement.”
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Student Loan Forbearance Ends April 30th Heres What You Need To Know
The federal government extended forbearance of repayment of student loans during the COVID-19 crisis. This forbearance was due to end at the beginning of January, but the deadline was extended to April 30, 2022. This means unless the president makes a change, payments will resume the following day for millions of Americans.
According to White House Press Secretary Jen Psaki, the Education Department is still assessing the impact of the omicron variant. Psaki claims that efforts are underway to create a smooth transition back into repayment is a high priority for the administration.
However, for the millions of Americans struggling to make ends meet with student loan debt, this is of little comfort. The good news is there are things you can do to improve your situation.