It’s right there on the US Department of Education website: Student loan payments will start again after August 31, 2022. Skeptical? It is understandable. The Department of Education has repeatedly set an end date for the federal student loan moratorium, which began in March 2020, then revised it at the last minute to give borrowers more time. The break has now been extended six times and most borrowers have defaulted on their debt for well over two years. Additionally, the timing of this round is particularly sensitive, said higher education expert Mark Kantrowitz. More from Personal Finance: Social Security is not bankrupt: What we know about benefits How taxes on Social Security benefits may change Why the Social Security retirement age may go beyond 67 Inflation is rising faster than it has in decades, and with the November midterms looming, Democrats likely don’t want to be the ones handing out another bill to millions of Americans while their budgets are already squeezed. The typical student loan payment is around $400 per month. “I think the repayment will not start again on September 1st — two months before the election,” Kantrowitz said. “Most likely, the student loan moratorium will be extended until sometime next year.” All that being said, no official announcement has been made regarding an extension. More recently, Department of Education Undersecretary James Kvaal said in an interview that payments are expected to resume after August. Either way, Kantrowitz said, payments will eventually resume. “Borrowers should start preparing now,” he said. Here are three steps borrowers can consider now.
1. Storage
Borrowers should pretend payments have already started and direct their regular monthly student loan payment into a savings account, Kantrowitz said. Doing so will make the eventual resumption of payments a little less painful. Some banks have started increasing the interest rates they offer on people’s savings and it’s worth shopping around for the best deal, experts say.
2. Consider which payment plan makes the most sense
using a calculator Witthaya Prasongsin | Moment | Getty Images Many people’s lives have been changed by the pandemic. If your circumstances look different than they did more than two years ago, it may make sense to review different student loan payment plans to find the one that best fits your current situation. Government income-based repayment plans, for example, limit your monthly bill to a share of your discretionary income. Some payments end up being as little as $0, and any remaining debt after 20 years or 25 years is supposed to be forgiven. The standard repayment plan, meanwhile, may come with a larger monthly payment, but if you can afford it, it allows you to pay off your debt in as little as 10 years. Use one of the calculators at Studentaid.gov or Freestudentloanadvice.org to compare repayment plans, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit organization. To beat the last-minute rush, contact your loan servicer now if you need a deferment, forbearance or an income-based repayment plan. Mark Kantrowitz specialist in higher education If you’re unemployed or experiencing other financial hardship, you’ll have options when payments resume. You can file for financial hardship or unemployment deferment. These are ideal ways to defer your federal student loan payments because no interest accrues on them. If you don’t qualify for either, however, you can use a forbearance to continue suspending your accounts. Just keep in mind that the interest will accrue and your balance will be larger — possibly much larger — when you keep paying. “To beat the last-minute rush, contact your loan servicer now if you need a deferment, forbearance or an income-based repayment plan — unless you like being on hold indefinitely with your loan servicer,” Kantrowitz said.
3. Know your loan servicer
Three companies that serviced federal student loans — Navient, the Pennsylvania Higher Education Assistance Agency, also known as FedLoan, and Granite State — all announced they would end their relationship with the Department of Education. As a result, about 16 million borrowers will have a different company to deal with until payments resume or not long after, according to Kantrowitz. For a smooth transition, double-check that your service has your current contact information so you’ll receive all notifications about the upcoming change, Kantrowitz said. Affected borrowers should receive multiple notifications about their new servicer, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers. If you accidentally send a payment to your old service, the money should be forwarded to your new one, Buchanan said.
