As of March 2020, federal student loan repayments have been suspended for millions of borrowers in the United States. But this temporary forbearance period (which President Biden extended in December 2021) is scheduled to end on May 1, 2022 – barring further extension or alternative student loan relief measures. If you have federal student loans, take steps now to prepare for the resumption of student loan repayments in the not-too-distant future.
What advantages do federal student loan borrowers have during the coronavirus pandemic?
The CARES Act and subsequent extensions provided several relief measures to help federal borrowers deal with the coronavirus pandemic. For most borrowers, the three most significant benefits of student loans are:
- Eligible borrowers do not have to make payments on federal student loans or FFEL program loans in default until May 1, 2022.
- Interest is temporarily suspended on eligible federal student loans and defaulted FFEL program loans until May 1, 2022.
- Collection efforts for defaulted federal student loans and defaulted FFEL program loans are temporarily suspended.
The most recent 90-day extension gives federal borrowers even more time to recover financially from pandemic-related difficulties. They can use the money that would have been used to pay off student loans to cover essential expenses, pay off debt, build up their emergency fund, or even pay off more of their student loan principal with 0% interest rates.
Private student borrowers are not eligible for any government-mandated relief at this time. The same is true for some federal student loan borrowers with older loans held by private companies.
However, this does not mean that private lenders are unwilling to offer help in times of difficulty. If you cannot afford to repay your private student loans right now due to COVID-19 challenges, you should call your lender to ask if temporary relief measures are available.
How to Prepare for the End of Federal Student Loan Forbearance
It’s a good idea to start taking steps now to prepare yourself financially and mentally to resume monthly student loan payments. Below are four ideas you might consider.
1. Keep making payments
The coronavirus pandemic has impacted household budgets across the country. Still, if you can still afford to pay off your student loan before the federal suspension of payments ends, it could be a great way to pay off your debt faster and save some money.
Certified Student Loan Counselor Kat Tretina explains why making manual payments on your federal student loans during this time could benefit you. “Because of the CARES Act, the interest rate on federal loans is set at 0%, so any payments you make will go toward principal rather than interest charges,” she says. “Making payments now will reduce the amount of accrued interest later.”
If you’re wondering how much these interest-free payments could save you, both in repayment time and money, a student loan calculator can help you work out the numbers.
2. Pay yourself
Another option you might consider is making student loan payments to yourself while monthly payments to your student loan officer are on hold. Even if you can’t afford to pay the entire student loan yourself, you may be able to make a partial payment and put those funds into a high-yield savings account.
Once normal payments resume (or are about to resume), you can consider two options. First, you can make a lump sum payment to your agent before the interest-free period of your loan expires. Alternatively, you can choose to keep the money you’ve saved in an emergency fund or use it to provide an extra cushion in case you struggle to meet your monthly payments later.
However, keep in mind that everyone’s situation is different. If you have high-interest debt or hold private student loans, you may want to consider moving other money around while your federal student payments are on hold.
3. Ask for other types of help
Coronavirus relief measures aren’t the only way to get help with your federal student loans. The Department of Education offers other types of assistance to eligible student borrowers under normal circumstances.
For example, after this automatic forbearance period ends, you can apply to defer your federal student loans if you need to temporarily reduce or defer your payments. Keep in mind, however, that interest may continue to accrue on your loans even when your payments are suspended.
Applying for an income-driven repayment plan is another option you might consider. If you qualify, your monthly payment will adjust based on your income and family size, and you may see your remaining balance discharged after 20-25 years of payments.
4. Determine if refinancing is right for you
Finally, you may want to see if refinancing your federal student loan would benefit you financially. Student loan refinancing can help you save money over the term of your repayment or reduce the amount of your monthly payments.
Of course, it’s important to think carefully about whether refinancing is right for you, especially if you have federal student loan debt. If you decide to refinance, you will lose federal benefits such as access to income-oriented repayment plans and eligibility for loan forgiveness.
Coronavirus Student Loan Forbearance FAQs
Who can benefit from the administrative abstention?
If the Ministry of Education owns your loan or if you have an FFEL program loan in default, you should be eligible for administrative forbearance benefits. Student loan servicers have placed eligible student loans on automatic administrative forbearance. You can call your repair person if you have any questions.
When do federal benefits expire?
The federally mandated administrative forbearance will expire on May 1, 2022. So, unless there is another extension or act of Congress, regular federal student loan repayments (including automatic payments) will resume after May 1, 2022.
Will student loan forbearance be extended again?
President Biden’s decision to extend abstention for another 90 days was a U-turn for the administration. Just a few days before the announcement, White House press secretary Jen Psaki had confirmed that payments would resume on February 1, 2022.
After the round trips with the last extension, difficult to say if the administration will claim another one. With inflation and novel coronavirus variants impacting the economy, there is a lot of uncertainty. However, the president is expected to continue to receive calls from members of his party to extend more help to student borrowers, whether in the form of continued forbearance or widespread forgiveness.