School Loan Payments to Restart Soon: Are You Ready?

School Loan Payments to Restart Soon: Are You Ready?

Payments on federal student loans will resume in 60 days. President Joe Biden extended temporary student loan relief until May 1, 2022, the third time he has done so. Borrowers of student loans should start planning for the end of the student loan payment suspension. Here’s how you can get ready.

What does it imply that student loan forgiveness is coming to an end?

Biden and President Donald Trump have extended the temporary student debt relief from the Cares Act — five times the $2 trillion stimulus package passed by Congress in March 2020. 

When this student loan relief period expires in 60 days, student loan borrowers will face several changes, including: 

  • federal student loan payments will be due monthly; 
  • federal student loan interest will begin to accrue; and 
  • student loans in default will be subject to debt collection, such as wage garnishment.

Borrowers of federal student loans have not been required to make any payments since March 2020, and interest rates on federal student loans have remained 0% use here.

What will the interest rate on my new student loan be?

You may be wondering what your new student loan interest rate will be when payments resume. Your interest rate is almost certainly fixed if you have federal student loans. This means your interest rate will remain constant during the term of your student loan. As a result, the interest rate in March 2020 will be the same one you had in May 2020. You may have a variable interest rate on older federal student loans. This means that your interest rate may fluctuate during the loan. Your new interest rate will be based on current market rates beginning in May.

Is it possible that private student loans may be affected?

Only federal student loans will be affected by the starting of student loan installments in May. 

Federal student loan relief does not apply to private student loans. As a result, you should continue to make regular payments on your private student loans.

How does income-driven repayment influence student loan relief?

It’s possible that your income, family size, state, or all three have altered due to the Covid-19 epidemic. If you’re on an income-driven repayment plan like IBR, PAYE, REPAYE, or ICR, now is an excellent time to update your student loan servicer with this information. These factors may impact the amount you pay each month on your federal student loans.

What effect does student loan relief have on loan forgiveness?

The end of student loan forgiveness does not necessarily equal the end of student loan relief. 

Borrowers of federal student loans could count non-payments as if they had made their payments during the student loan relief program

For a student loan borrower seeking public service loan forgiveness, nearly two years of non-payments can be “counted” toward the 120 monthly payment threshold. While this advantage will be phased off, student loan debtors will be able to “count” additional payments that were previously ineligible. 

Borrowers of student loans could fill for a restricted waiver with the US Department of Education to have past student loan payments count toward public service loan forgiveness, which can help them get student loan forgiveness sooner. Since becoming office, Biden has canceled more than $15 billion in student debt.

Is it time to refinance my student loans?

Student loan refinancing might save you money if you desire a lower interest rate, a lower monthly payment. You can refinance both undergraduate and graduate student loans and federal and private student loans. When refinancing student loans, you have the option of choosing a fixed or variable interest rate and a payback term of 5 to 20 years.

This refinancing calculator for student loans will show you how much money you can save if you refinance your student loans. Only refinance private student loans if you want to get student loan forgiveness, income-driven repayment, or other government incentives. Why? When federal student loans are refinanced, they become private student loans and are no longer eligible for federal programs. However, receiving a lower interest rate on your federal student loans may make more financial sense for you depending on your specific circumstances. 

You are the only one who can decide whether preserving federal benefits or having a lower interest rate is a better financial decision for you.

Carol C. Reed