If you’re a student loan borrower, you may have been wondering when your payments will resume. Since March 2020, federal student loan payments have been suspended due to the Covid-19 pandemic.
The pause has been extended eight times, and it is set to end when the legal challenges surrounding President Biden’s debt forgiveness plan reach a conclusion.
Interest Rates
The interest rates associated with student loans are set by the government. Federal student loans are typically charged a fixed rate of interest, but some private student loans can be subject to variable or adjustable interest rates.
Borrowers are generally advised to keep their loan servicers and contact information up to date so they can receive any communication regarding payments, and so they can make sure their financial situation is in order. They should also look at their current budgets and decide what changes need to be made to help them get back on track with their student loan repayments, experts recommend.
Higher education expert Mark Kantrowitz says the Biden administration’s previous statements that the fifth and seventh extensions were the “final” ones have led him to believe payments may actually resume this year. However, he points out that the government’s timeline for when it will start payments again depends on whether the Supreme Court justices issue a final decision on President Joe Biden’s plan to forgive student debt by the end of June.
According to the Department of Education, if a resolution isn’t reached in the court cases by June 30, then payments will resume 60 days later. That means that if the justices decide to stop the plan, payments will restart by August.
As a result, it’s a good idea to save up as much as possible during this pause so you can make a lump sum payment when the payments resume again. This could be used to pay down other debt or to build an emergency fund.
In the meantime, borrowers should consider consolidating their loans with income-based repayment plans. These plans can limit student loan payments to 10% of your monthly income, which can make them more manageable.
If your student loan balances are high, you might want to explore refinancing your debt through a new lender. There are many options for refinancing your loans, and the best one for you will depend on your individual circumstances.
The Department of Education also advises borrowers to look at all of their options for paying back their student loans, including forbearance and deferment. Forbearance allows you to temporarily stop making payments while you’re on a pause, while deferment freezes your loan payments. You can also consolidate your loans to lower your interest rate and improve your payment terms.
Deferment
Student loan deferment can be an effective way to temporarily pause your payments while you’re pursuing your education. There are various deferment options available, so you should always contact your lender to find out which one is best for your situation.
Depending on the type of deferment you choose, your interest may continue to accrue or be waived during this period. However, unpaid interest that accrues during deferment can add up to a lot of extra money, which is why it’s important to make payments on time when your loan deferment ends.
There are different types of deferment available, including in-school, graduate fellowship, and unemployment. These are generally available for Direct Loans, FFEL Program loans, and Perkins Loans (other loans might still accrue interest during deferment).
For in-school deferment, your loans will be placed into this status automatically based on the enrollment information reported by your school. If your loan isn’t automatically placed into a deferment, you can request it by completing the In-School Deferment Request form or contacting your school’s financial aid office.
If you are enrolled in an internship, clerkship, fellowship, or residency program, your student loan can be deferred for up to 36 months. Your loan will be placed in this deferment while you are in the program. This will allow you to study and work without making monthly principal and interest payments, which will lower your Total Loan Cost.
This is especially beneficial for those who have a subsidized loan because they won’t be charged interest during this deferment. It’s also a good option for those who are volunteering or serving in the military and want to take a break from student loan payments while they serve.
Another popular student loan deferment is unemployment, which allows borrowers to skip loan payments while receiving government assistance or working part-time jobs. These are generally available for up to 36 months and can be renewed every six months.
Other student loan deferment options include those for students in active duty or post-active duty military service, or if you’re undergoing cancer treatments. This is a great option for people who aren’t in the position to work or make payments while they undergo treatment.
Forbearance
If you’re having trouble keeping up with student loan payments due to an emergency or a temporary hardship, your lender may be willing to pause or temporarily reduce your monthly payments. The pause or reduction is known as forbearance and is often offered by mortgage and federal student loan lenders.
Forbearance can offer temporary relief and help you avoid a costly default, but it’s important to understand when to use this option and how it will impact your finances in the long term. As always, the best solution is to stay on top of your payments and work toward a payment plan that works for you.
Whether you’re seeking forbearance for your mortgage or student loans, it’s best to communicate proactively with your lender or servicer and keep them updated about your current financial situation. They’ll be able to tell you when your pause or forbearance ends and how long you have to make up any missed payments.
Some forbearance plans do not require you to pay interest during the pause, which can save you money in the long run. However, borrowers should be aware that interest will still accrue during forbearance and is capitalized (added back to your loan balance), so it’s essential to make payments on your outstanding balance as soon as possible.
If you want to request a forbearance on your student loan, collect documents that illustrate your financial hardship and provide these with your application. This could include copies of recent pay stubs that show lower income or bank statements that show extra expenses, for example.
Forbearance is available on most federal and private loans, but be sure to check the terms before making a decision about using it. Forbearance is not a permanent solution and will affect your credit score, so it’s best to use it for only a short time.
Another way to avoid forbearance is to apply for an income-driven repayment plan. This will reduce your monthly payments and allow you to start paying off your debt faster.
It’s also a good idea to consult with an expert to find out what options are available to you. Some borrowers have been able to negotiate a more affordable payment through a private lender or a reduced rate through a refinancing program.
Repayment Plans
Borrowers have several repayment plans they can choose from, depending on their financial situation. These plans can reduce payments and lower the total amount you pay over time. The most common plan is Standard Repayment, which spreads your monthly payment over a 10-year period. You can also choose Graduated Repayment, Extended Repayment, or Deferred Repayment.
The Department of Education has also proposed a new income-driven repayment plan, which would cut payments in half for undergraduate and graduate borrowers and allow some borrowers to qualify for $0 payments. This plan will help borrowers manage their debt more easily and can be useful for people who aren’t in good jobs yet or who have trouble finding work after college.
Another option is Public Service Loan Forgiveness, which forgives a percentage of the debt if you have federal or private student loans and work in a qualifying government or nonprofit job. This program is available to borrowers who have at least $17,500 in student loans and have completed at least 120 credit hours.
If you’re not sure which repayment plan is right for you, use the Loan Simulator to get a better idea of your options. You can then contact your loan servicer to find out what plan is best for you and how much it will cost.
For most borrowers, the most economical repayment plan is Standard Repayment. Under this plan, you make fixed monthly payments that are the same amount as your prior payment plus a portion of the interest you’ve accrued. You’ll make these payments for 20 or 25 years, depending on the type of loan. After that term, any remaining balance will be discharged (you’ll pay taxes on the forgiven amount).
As with all other types of student loans, it’s important to save up money in case you can’t make your payments. Some experts suggest putting a set amount of money in a savings account each month so that you have enough money to cover your future payments if necessary.
Whether or not you’ll be able to resume making student loan payments depends on when the Supreme Court decides to hear the Biden administration’s appeal of the cancellation plan. If the court rules quickly, borrowers could see their payments start in May; if it takes longer, they might have to wait until August.
