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How To Prepare For The End Of Federal Student Loan Relief

Originally published by SoFi Blog

On Wednesday, December 22nd, President Biden announced that pandemic relief for federal student loan borrowers will be extended once again until May 1, 2022. Loan payments, interest accruals and collections of defaulted federal student loans have all been on hold since the start of the pandemic due to CARES Act, and extensions granted. Before the December 22nd announcement, payments were set to resume beginning February 1. Although this extension adds another 90 days, it still reinforces the importance of planning and preparing for when the relief does end.

It won’t be an easy transition for some. A survey conducted 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. For example, SoFi has a refinancing program that allows eligible federal student loan borrowers to lock in today’s rate while continuing to enjoy the payment freeze that will end after April 30, 2022. Enrolled borrowers would have their loans disbursed, and enjoy 0% interest until then; payments would begin in May.

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.

  Did You Know?
ABA members have access to a student loan refinancing benefit.
  The ABA Insurance Program has teamed up with SoFi to help you reach your financial goals—and save some money at the same time.  
Learn More

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.

The Takeaway

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 career coaching, member events, and more — at no additional cost.

Looking for guidance on your student loan situation?
The American Bar Association Insurance Program has teamed up with SoFi to offer a student
loan refinancing benefit to help ABA members, their families, and employees
in making the right decisions when it comes to their student debt.

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Unless stated, the opinions shared by USI Affinity writers do not reflect the official position of the American Bar Association.