Student loans

Michelle Singletary: Prepare for student loan repayment after hiatus

Four more months.

That’s how much time federal student loan borrowers have before their repayments resume. Or maybe not.

It is possible that another repayment reprieve will extend the loan pause until the end of this year. But, even if that happens, if you have federal loans, it’s time to start planning for when your payments will need to be paid.

Here’s what you need to know about the most recent extension, including major relief for borrowers who were in default before payment breaks began.

Has anything changed with the payment pause?

The relief remains the same and only applies to eligible federal student loans. The extension for student loan repayment, interest and collections runs until August 31.

The pandemic-related payment pause, first offered in March 2020 for federal student loans, includes a 0% interest rate, suspension of loan payments, and suspension of collection actions on loans in suffering and failing.

But there was important news for people who were in default.

The pause provided defaulting borrowers with temporary protection from collection activity, but that was it. The Biden administration announced that those borrowers would not return to collections after the pause ends.

This will significantly ease the financial strain on millions of borrowers, including those from minorities and low-income households, said Abby Shafroth, acting director of the National Consumer Law Center’s Student Loan Borrower Assistance Project.

“These borrowers will no longer be subject to the financially destabilizing collection practices the government uses to collect student loans once they are in default,” Shafroth said.

What help will I get if my loans were in default before the pandemic?

When someone defaults on their student loans, tax refunds can be garnished, wages can be garnished, and a portion of Social Security payments (including disability benefits) can be withheld. Defaulting borrowers cannot qualify for income-oriented repayment programs and hardship deferrals.

“Once a family struggles with unaffordable student loan debt, they can have the social safety net taken away from them,” Shafroth said.

At the start of the pandemic, under the Cares Act, collection actions for eligible defaulted loans were suspended. But many people were worried about what would happen after the break was over.

The Department for Education said these borrowers will now be given a “fresh start” and reintegrated into repayment in good standing.

“At the end of the payment break, the negative defect mark will be removed from their credit,” the Department of Education said in a statement through a spokesperson.

Borrowers will not be subject to collection actions such as tax refund set-off or wage garnishment.

The Department of Education said that in the coming weeks, additional information will be posted on studentaid.gov and borrowers will receive direct communication about how this relief will directly affect them.

How should I prepare for the resumption of my loan repayments?

The first thing you need to do is make sure your loan officer has your most recent contact information. Don’t assume that if the repairman doesn’t contact you, you’re off the hook.

Update your contact information with your loan officer and in your studentaid.gov profile.

Open your mail – snail and email. Seriously. Ignoring your responsibility will only make things worse.

Make sure you know which company is handling your student loans, said Betsy Mayotte, president of TISLA (The Institute of Student Loan Advisors), a nonprofit that offers free student loan advice.

“During this whole COVID break, we’ve had a lot of service upheaval, and loans have changed and continue to change who the service is,” Mayotte said.

Navient, which was a major student loan servicer, left the federal service industry last year.

I won’t be able to pay my loan repayment when they start up again. What can I do to lower it?

If you’re still struggling and haven’t done so yet, consider lower payment options, including various income-based repayment plans.

In some cases, depending on your income, family size and where you live, your monthly payment could be extremely low or even zero.

For more information on the plans, go to studentaid.gov.

“We can almost always find a solution for people struggling with federal loans,” Mayotte said.

If your payment won’t be affordable and you need to apply for an income-based payment plan or hardship deferral, start filing the paperwork no later than July to ensure it’s processed in time for the first date. payment due date, Mayotte said.

Is there help for people on a Parent Plus loan?

If you have a Parent Plus Loan and the monthly payment is unaffordable, there is something you can do.

Mayotte recommends that borrowers consider applying for the income-contingent repayment plan by consolidating their Parent Plus loans into a direct consolidation loan.

Can I still benefit from the PSLF derogation?

Under the Public Service Loan Forgiveness Program, or PSLF, a borrower’s remaining debt balance is forgiven after 120 qualifying monthly payments.

Many people thought they were seeking forgiveness only to find out they weren’t eligible because the type of loan they had wasn’t eligible, or they weren’t in a certain type reimbursement plan based on income or that they did not work for an eligible employer. Others complained that their loan managers misled them about their PSLF eligibility or pointed them towards more forbearance or deferral options.

As part of an effort to address issues with the PSLF, the Department for Education last year introduced a time-limited waiver that would count previously ineligible payments towards the PSLF, including for people with disabilities. previously ineligible federal student loan types.

You still have time to take advantage of the exemption. But don’t wait until the last minute.

Borrowers who work in the civil service but have not applied for the program must do so by October 31. You can learn more about the waiver at studentaid.gov/pslf.

How likely is another payment break?

The Biden administration backtracked before ending aid. But it would be wise to start thinking now about how to fit your loan repayments into your budget. The relief will eventually end, so be prepared for the payback.

But what about the promised forgiveness of student loans?

You can hold out hope, but it’s still unclear if widespread loan forgiveness will happen.

There are so many disagreements about this debt that it would be wise not to count on your student loan obligation being canceled or greatly reduced.