Student loan repayments could resume in September. How to prepare now

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It’s right there on the US Department of Education website: Student loan repayments will resume after August 31, 2022.

Skeptical?

It’s understandable. The Department of Education has repeatedly set an end date for the federal student loan payment pause, which began in March 2020, then revised it at the last minute to give borrowers more time. The pause has now been extended six times and most borrowers have not repaid their debt for more than two years.

Moreover, the timing of this cycle is particularly sensitive, said higher education expert Mark Kantrowitz.

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Inflation is rising faster than it has in decades, and with November’s midterm elections looming, Democrats probably don’t want to be the ones to give millions another bill. Americans when their budgets are already tight. The typical student loan payment is around $400 per month.

“I don’t think reimbursement will restart on September 1 – two months before an election,” Kantrowitz said. “Most likely the student loan moratorium will be extended until next year.”

That being said, no official announcement on an expansion has been made. More recently, Education Department Undersecretary James Kvaal said in an interview that payments were still 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 might consider taking now.

1. Save

Borrowers should pretend payments have already started and direct their usual monthly student loan payment to a savings account, Kantrowitz said. This will make the eventual resumption of payments a little less painful.

Some banks have started raising the interest rates they offer on people’s savings, and it’s worth looking for the best deal, experts say.

2. Consider which payment plan makes the most sense

using the calculator

Withaya Prasongsin | time | Getty Images

The lives of many people have been turned upside down by the pandemic.

If your situation looks different than it did more than two years ago, it may be a good idea to look at the different student loan repayment plans to find the one that best suits your current situation.

Government income-based reimbursement programs, for example, cap your monthly bill at a share of your discretionary income. Some payments end up being as low as $0, and any remaining debt after 20 or 25 years is supposed to be forgiven. The standard repayment plan, on the other hand, may come with a larger monthly payment, but if you can afford it, it allows you to pay off your debt in just 10 years.

Use one of the calculators from Studentaid.gov or Freestudentloanadvice.org to compare repayment plans, said Betsy Mayotte, president of the Institute of Student Loan Advisors, a nonprofit organization.

To avoid the last-minute rush, contact the loan officer now if you need a deferral, forbearance, or income-based repayment plan.

Marc Kantrowitz

higher education specialist

If you’re unemployed or facing other financial hardship, you’ll have options when payments resume. You can file a request for deferment of economic hardship or unemployment. These are the ideal ways to defer your federal student loan payments, as interest does not accrue under them.

If you don’t qualify for either, you can use an forbearance to continue to suspend your bills. Just keep in mind that the interest will go up and your balance will be bigger, maybe a lot bigger, when you start paying again.

“To avoid the last-minute rush, contact the loan manager now if you need a deferral, forbearance or income-driven repayment plan – unless you like to be in endless waiting with your loan manager,” Kantrowitz said.

3. Get to know your loan manager

Three companies that handled federal student loans — Navient, the Pennsylvania Higher Education Assistance Agency, also known as FedLoan, and Granite State — all announced they were ending their relationship with the Department of Education.

As a result, about 16 million borrowers will have a different business to deal with by the time payments resume, or soon after, according to Kantrowitz.

For a smooth transition, make sure your repair person has your current contact information, so you receive all notices about the upcoming change, Kantrowitz said.

Affected borrowers should receive several notices 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 mistakenly send a payment to your old repairer, the money should be transferred to your new one, Buchanan said.

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