Over the weekend, there was good news for millions of student loan borrowers.
The outgoing administration extended their student loan payment hiatus to January 31, which means borrowers have an extra month to save, adjust their budgets, and reassess payment plans.
“The pandemic is not over yet and we don’t know when things will return to normal. I think it gives borrowers a sense of ease in knowing they have more time, ”said Jessica Ferastoaru, student loan advisor at Take Charge America, a national not-for-profit loan and student loan advisory agency.
The extension only applies to federally owned loans and includes the suspension of accrued interest and the suspension of collection for defaulted loans. The postponement was originally due to expire on December 31st.
Most of the provisions of the CARES bill, passed in March, expire on December 31st, including the expiry of several economic aid programs passed by Congress, local and federal agencies. Senators and representatives from both parties last week unveiled a new bipartisan stimulus package worth $ 908 billion; the negotiations continue. It could be the last chance Congress has to pass a coronavirus relief bill in 2020.
Unless a new stimulus package is passed, it remains unclear what will happen to student loan borrowers after January 31st.
“The student loan relief we’ve seen over the past eight to nine months is very different from anything we’ve ever seen before in relation to student loans,” says Ferastoaru. “Most of the borrowers I’ve spoken to are just waiting to see what’s next.”
There is no guarantee that additional help is on the way, so here are some things you can do to prepare for the end of student loan deferral.
Should You Pay Off Student Loans Now?
Borrowers don’t have to make payments by January 31st, but they can still do so.
If you’re still employed and have the funds at this point, you can get a head start and make payments on your state student loans. With the interest rate remaining at 0% until the end of January, now is a good time to reduce your principal balance. If you can reduce your principal during this period, you will save more money in the long run because you pay interest on a smaller amount of money.
“We don’t see too many borrowers trying to repay their student loan debt more aggressively, but we definitely recommend this as an option if they are financially stable and in a good position. It’s a great opportunity to save some money on interest, ”says Ferastoaru.
But don’t feel the need to pay off your state student loans even Aggressive next year, just in case more federal aid comes, writes Farnoosh Torabi, editor at NextAdvisor and presenter of the podcast “So Money”.
The Biden-Harris administration has proposed a $ 750 billion education plan with several initiatives to help borrowers and prospective college students.
The plan calls for $ 10,000 student debt forgiveness for each year of national or community service – up to five years – under the Public Service Loan Forgiveness Program, and public colleges and universities for all families less than 125,000 Earning US Dollars per Year, Free of Charge.
Under the plan, individuals earning $ 25,000 or less per year would not owe any payments on their federal student loans and would not incur interest on those loans.
“A lot has been suggested and it gives us a lot of hope,” says Torabi. “But I think the smart money move still relies on the individual. By that I mean that we must continue to be accountable for our finances. ”
Use the extra month to save and plan
While the federal student loan deferral provided financial relief for borrowers in trouble, it was never meant to be forever.
Now that the student loans are on hold until the end of January, you can take advantage of that extra month to save and create a plan that takes into account your credit status, current employment, and income.
“Prepare for payments by first trying to get your loans on with an affordable repayment plan, if you haven’t already, and resolve any defaulted student loans,” says Ferastoaru.
Contact your loan service provider (s) to discuss your options and what is the next best course of action for you in January. There are also tools on the Department of Education website that can help.
It might be a good time to explore income-based repayment options that cap your loan payment based on your income and family size. If you don’t qualify for an income-based repayment plan and can’t make your payment, ask your servicer for additional respite or forbearance, says Ferastoaru.
“If the relief is extended, this may be a good time either to save up and build your emergency fund,” says Ferastoaru, “or to target higher-rate debt like credit cards.”