Borrowers with federal student loans recently learned they will have another four months to skip payments without any interest accruing. That title is like a broken record at this point, mostly because it’s happened six times since the federal government originally suspended payments on federal student loans in March 2020.
This new pause on payments comes with an end date of August 31, i.e. if the Biden administration is not extending it again to pass the midterm elections. This means that at the end of this new pause period, many federal borrowers will have no reported progress on their student loan debt for two years and five months.
While political factors likely play a role in the decision, the Biden administration says a postponement is still necessary due to the national Covid-19 emergency and the “unprecedented economic disruption it has caused.” In a White House press releasePresident Biden said the following: “If loan repayments were to resume as planned in May, analysis of recent Federal Reserve data suggests that millions of student borrowers would face significant economic hardship, and that delinquencies and defaults could threaten the financial stability of Americans. .”
Whether you’re personally struggling or not, those extra four months can help prepare you for the inevitable of having to start repaying your student loans in the future. How do you make the most of that extra time you have? Consider these steps to prepare before it’s too late.
Determine how much you will owe
In order to prepare for the inevitable of having to repay your loans again, you need to make sure you know how much you owe and how much your monthly payments will be when they resume. You can do this by logging into your student loan account at www.studentaid.gov. using your FSA ID username, email or phone number.
Once logged into your account, you can view your current federal student loan balances, their respective interest rates, and your payment amount. You can also find your student loan officer, which may have changed if you haven’t made a payment since March 2020.
Find payment plans for your loans
If you are experiencing financial hardship due to the pandemic or any other reason, now is a great time to explore all the different options for repaying your federal student loans. Remember that the standard 10-year repayment plan for federal student loans is the default option, but not the only option. In fact, there are many repayment options available that can help you get a lower monthly payment over a longer repayment term.
For example, federal borrowers can opt for a graduated repayment plan that initially comes with lower monthly payments with a slow, gradual increase in payments over time. Another option is an extended repayment plan, which allows federal borrowers to repay their student loans with fixed or progressive payments over 25 years. That said, extended repayment is only available to direct loan borrowers who have more than $30,000 in outstanding student loan debt.
Also explore the possibility of opting for income-oriented repayment plans. These plans allow you to pay a percentage of your discretionary income for 20 to 25 years before canceling the remaining balances of your student loan. If your income is low enough, your monthly payment on an income-driven plan could even be as low as $0. Additionally, if you are considering loan forgiveness through programs such as the Civil Service Loan Forgiveness, you must be enrolled in an income-based repayment plan.
Consolidate your overall finances
Although payments are on hold and interest rates are at 0%, now is a great time to prepare financially for repayment, even if you can switch payment plans. While your next best steps in this area will depend on your unique financial situation, some steps you can take to prepare for repayment include paying off other debts (especially high-interest debt like credit card debt). credit) and researching ways to earn more money if you need to.
By paying off high-interest debt, you have the opportunity to lower your long-term interest costs while eliminating some of the monthly payments you currently make. And, we all know the benefits of making more money, whether you need the money to make your student loan payments or not. Fortunately, unemployment is low and jobs of all kinds are plentiful right now.
Tracking your expenses and creating a written monthly budget can also help you determine where your student loan payment will be once payments resume. For example, you might think you can’t afford your payments, but tracking your expenses could help you find areas where you could spend less if you needed to.
Also note that you can still request repayment of any federal student loan payments you’ve made since March 2020. This step will set you back in terms of repayment, but it’s worth exploring if you’re really struggling financially and you worry about making payments. again.
Remember to make payments anyway
Finally, there is one serious mistake not to make during the current federal student loan pause period. Don’t assume your student loan debt will be forgiven and any changes you make won’t matter in the long run.
The fact is, most student loan experts agree that a large student loan forgiveness is extremely unlikely – not this year and maybe ever. Even though some student loan debt has been forgiven, the Biden administration’s most recent proposals only mentioned forgiveness of up to $10,000 of debt per eligible borrower. Since student loan forgiveness is unlikely to be forced by executive action, even this amount of forgiveness is unlikely to materialize.
With all of this in mind, it can certainly make sense to pick up loan payments where you left off. If you have the income to do so, the fact that interest rates are currently set at 0% also means that every dollar you pay will go directly to the principal of your balance.
If you wait to make student loan payments until the Biden administration stops extending the emergency pause, you could easily find that you’ve been tossing the box on the road for far longer than you should. . At some point, your student loan repayments will be back in full force. What you do now could make that fact easier or harder to handle, and the choice is yours.