Student loan borrowers have not had to repay their federal loans since the CARES Act was enacted in March 2020, but that hiatus is expected to end on September 30.
The Biden administration faces pressure from Democrats to extend the payment break until March 31, 2022. However, it is not clear whether the president will actually extend the abstention period beyond the September deadline for the 43 million Americans receiving federal student loans.
Here’s what to know about when your loan payments will resume and what you should do with your student loan debt in the meantime, like refinancing.
You should consider refinancing your private student loans when interest rates are at historically low levels, although refinancing your federal loans has some drawbacks. Compare the student loan refinance rates on Credible to see if it’s the right decision for you.
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Student loan payment break may be extended
Supporters of extending the student loan payment hiatus cite unemployment and income data as the reason why the forbearance period should be extended. The economic recovery from the coronavirus pandemic is still ongoing, but the unemployment rate among recent college graduates has still not fully recovered to pre-pandemic levels.
Education Secretary Miguel Cardona said extending the break was not “out of the question” and that the Biden administration was looking at data like this to determine its next steps.
“Obviously, we’re always going to take the lead in what the data tells us and where we are as a country with regards to the resumption of the pandemic. It’s not out of the question, but at this point, it is September 30th. “
Democratic House and Senate lawmakers sent a letter to President Joe Biden on June 23 urging him to extend the federal student loan forbearance period until March 2022. The coalition is led by Senator Elizabeth Warren (D-Mass.) And the majority in the Senate. Chief Chuck Schumer (DN.Y.).
“Failure to extend this break would not only hurt struggling students in our country, but it could also impact future economic growth and recovery,” Schumer said.
Following the lead of prominent Democrats, more than 120 organizations, including the American Civil Liberties Union and the National Consumer Law Center, called on Biden to extend the abstention in a letter to the president dated June 24.
The pressure is on Biden to extend the hiatus on federal student loan payments for a while, but so far there has been no guarantee from the Department of Education.
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What to do with your student loans while you wait
With so much ambiguity as to whether or not student loan payments will resume in October, it is safer to go ahead with the assumption that they will. Here are some steps you can take in the meantime to prepare your finances for your loan repayment resumption:
- Refinance Your Private Student Loans When Rates Are Low.
- Set aside the extra money for resuming student loan payments.
- Research other federal loan forgiveness programs.
Refinance Your Private Student Loans When Rates Are Low
It is not recommended that you refinance your federal loans now, as it will disqualify you from federal protections such as income-based repayment plans, zero interest forbearance, and possible student loan forgiveness. But if you have private student loans, it’s a good idea to refinance now because rates are historically low.
Student loan interest rates hit record highs in June 2021, according to data from Credible. The average interest rate on a 10-year loan fell to an all-time low of 3.50% among borrowers with a credit score of 720 or higher who refinanced their loans on Credible. The 5-year variable rate loan rates fell to 2.88%, the lowest for all of 2021.
If you are able to get a lower interest rate on your private student loans, you may be able to lower your monthly payment, pay off debt faster, and save money on interest over the life of your loan. .
You can see the estimated interest rates in the table below. When you’re ready to start refinancing your student loans, compare the rates on an online loan market like Credible to make sure you’re getting the lowest possible interest rate for your situation.
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Set aside extra money for resuming payments
The coronavirus loan forbearance has provided a much needed break for some borrowers who otherwise would not have been able to make their monthly payments. But forbearance may not have been completely necessary for all borrowers, and it may be possible to increase your savings so that you are ready to resume repayment of the loan.
If possible, you can also consider continuing to pay off your federal student loans to pay off the principal balance while the interest rates are at 0%. This can save you money on interest over the life of your loan and help you pay off your college debt faster.
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Search for other federal loan forbearance programs
The current payment suspension automatically applies to all federal student loan borrowers, but there are other ways to suspend your student loan payments on request. Find out if you qualify for any of the following federal programs:
- Abstention from unemployment: Unemployed federal student loan borrowers can request that their loans be deferred for up to 36 months. During this period, interest is usually not charged on subsidized loans, but it is still charged on unsubsidized loans, such as PLUS loans.
- Tolerance of economic hardship: If you have a job but are still having difficulty making your federal student loan payments, you can request a postponement of your loans due to economic hardship. This comes with the same conditions as abstaining from unemployment, but it can be more difficult to obtain.
- Income-based repayment plans: Borrowers who do not qualify for deferral of their student loan may consider signing up for an income-based repayment plan, which caps your monthly payment at a percentage of your income, typically around 10-20%.
If you’re still not sure what to do with your student loans, contact an experienced loan officer at Credible who can help you determine the best course of action.
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