Federal student loan borrowers who anticipate the return of their regular student loan payments on October 1 can once again breathe a sigh of relief: the hiatus will continue until January 31, 2022, the Education Department said on Friday.
The department said the extension – the fourth since March 2020 – will be the last. As with the previous extensions, this forbearance does not apply to private student loans.
The move means that by January 31, there will have been almost two years of relief in payments for federal student loan borrowers.
The forbearance began under the original coronavirus relief bill, known as the CARES Act. Borrowers received it automatically and the interest rate on their balances was set at 0%. The hiatus gave student loan debtors time to deal with lost jobs, juggle finances to pay for food and shelter, or build emergency savings.
In the announcement by the Ministry of Education of this latest extension, Education Secretary Miguel Cardona said the time for such measures is drawing to a close.
“As our country’s economy continues to recover from a deep hole, this latest extension will give students and borrowers the time they need to plan for the restart and ensure a smooth return to repayment,” said Cardona in a press release.
Even the additional lead doesn’t mean borrowers – or the agents who handle student loan payments – will be ready by February 2022, according to student loan experts.
“The student loan system is not ready to resume repayment on Oct. 1 and President Biden has made the right decision to postpone repayment,” said Persis Yu, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center, in a press release. .
Yu suggested that the administration use the break to consider other relief, such as student debt cancellation and adjustments, so that defaulting borrowers do not face a wage garnishment or default. foreclosure of tax credits and social security benefits when payments resume.
Scott Buchanan, executive director of the Student Loan Servicing Alliance, the trade association for student loan managers, sees the extension as a missed opportunity.
“The department still needs to do the hard work to establish a recovery plan – which has yet to happen,” he said in an email.
Buchanan advocated “a gradual recovery where those who have not been financially affected resume payment and those who have can continue to withhold payment or use an income-driven plan.”
How should borrowers prepare for six months to maturity?
If you have financial difficulties
Borrowers who think they have difficulty making their payment next year can use this final payment extension as a trial period.
Start making workout payments now by setting aside your regular student loan bill. This will get you back into the habit of seeing the payment leave your account. But, more importantly, it will let you know if you are financially capable of making the payments.
If it is difficult or impossible to make the practice payments after two or three months, contact your agent to discuss your options, such as enrolling in an income-based repayment plan, or IDR.
Income-based repayment plans cap payments at a portion of your income and extend the repayment term. If your income is low enough or if you do not have a job, your payment could be zero. If you are already registered with the IDR, be sure to recertify your income with your manager if it has changed.
If you are financially stable
Not all borrowers struggled financially during the economic downturn – and others were able to bounce back. If you are confident in your ability to make payments next year, you can take this opportunity to make sure your financial goals are in place.
Borrowers who want to reduce their overall debt, reduce the amount they will pay off in interest on student loans, or pay them off faster should consider making payments during the latter part of the break.
Your payments will be applied to any interest accrued before your principal, but any payment will help you reduce the total amount you will pay over the life of the loan. Since your loans are forborne automatically, you will need to contact the agent to do so.
Borrowers with high-interest debt, like credit cards, or long-term savings goals, like a down payment for the house, can also apply potential student loan payments to those goals.
For borrowers with special circumstances
If your situation is not as clear-cut – such as delinquent loans or under the civil service loan forgiveness program – extending the forbearance may have special implications for you. Contact your service agent or lender to find out how to best manage your loans.
Cecilia Clark and Colin Beresford are writers at NerdWallet. the article originally appeared on Nerdwallet.