Student Loan Debt Questions

What Comes Next For Student Loan Debt?

Student Loan Debt: How Long Will Federal Payments Remain Paused & What Comes Next?

Are you one of those who have yet to settle their student loans? If so, you must have these questions in mind: Are federal student loan payments paused? How long will federal payments remain paused? Will student loans be canceled?

Given that everyone is still trying to get back on their feet from the pandemic, you’ll want to get as much assistance and understanding as you need from the government. Read on to learn more about federal payment announcements, what to expect, and how you can prepare for what’s next.

Extension of Federal Student Loan Payments

The U.S Department of Education announced on April 6, 2022, that the student loan payment pause has been extended until August 31, 2022. This means that loan payments are suspended, the interest rate is 0%, and collections on defaulted loans are stopped.

However, you can still opt to give interest-free payments if you want a lower total principal balance once interest starts again in September. Out of over 43 million student loan borrowers, around 500,000 have continued to repay their loans despite the pause provided.

The Education Department has also shared its plan to remove defaults for around seven million federal student loan borrowers. They would give borrowers a fresh start by returning their accounts to good standing.

According to President Joe Biden, Americans are still trying to recover from the pandemic, especially given the abrupt economic disruption. Based on the report from the Federal Reserve, resuming repayment in May would only threaten borrowers’ financial stability. Thus, with the federal student loan payments paused, you still have a few more months of relief.

Is Another Extension of Federal Payments Possible?

Since the start of the global pandemic, the Education Department has announced the pause of federal payments six times already. Originally, this payment pause and 0% interest rate were enacted on March 27, 2020, through the CARES Act. Then, it was supposed to end on September 30, 2020.

However, it was extended until December 31, 2020. Then, other extension dates followed, namely January 31, 2021, September 30, 2021, January 31, 2022, May 1, 2022, and currently, August 31, 2022.

Thus, you can’t help but wonder if there will be another announcement of an extension later this year. According to experts, borrowers may not take the most recent announcement of the repayment schedule seriously.

This distrust may come from the fact that the government seems to keep changing its mind. Moreover, the scheduled repayment of federal payments is just two months away from the midterm elections, so to avoid negative effects on the poll, another extension is possible.

Will Student Loan Forgiveness Still Happen?

While the announcement of another extension on the student loan payments is great news to borrowers, you might still ask: Will student loans be canceled? During President Biden’s campaign, he promised significant student loan forgiveness, but the extension poses uncertainty.

According to the White House, student loan forgiveness deliberations are still being conducted. Among potential voters, about 66% are in favor of granting student loan forgiveness. Among Latino and Black voters, over 70% share the same sentiment. Meanwhile, President Biden is under a lot of pressure to lessen the enormous education debt amounting to $1.7 trillion by canceling $50,000 for each borrower.

It can be recalled that in March 2022, Ron Klain, the White House chief of staff, stated: President Biden would first come up with a decision on student loan forgiveness before reinstating loan payments, or he would extend the pause.

Thus, the extension means President Biden would have more time to decide on the next steps regarding student loan forgiveness. Through an executive order, canceling student loans is possible, especially since White House Press Secretary Jen Psaki shared that President Biden is seriously considering student loan forgiveness. However, she noted that the cancellation might only be a maximum of $10,000.

No Interest for Most Loans

Those who have federal student loans in the Direct program and FFEL program loans under the Ensuring Continued Access to Student Loans Act (ECASLA) in 2008-2009 and 2009-2010 will enjoy the suspension of interests. According to the Federal Reserve, this means borrowers have saved around $200 billion within the given break.

However, the policy does not include private student loans and Federal Family loans. Thus, your debt would still increase with interest.

Actions To Take Following Extension Announcement

Another extension of repayments on student loans may not be impossible. However, it’s best to prepare for the scheduled repayments in September. About 21 days prior to the due date of your first payment, your loan servicer will send you a billing statement.

With the federal student loan payments paused, you can choose to send interest-free payments and let them be applied to your principal. However, if you’re aiming for student loan forgiveness, you might not want to do this because it will lower the amount of forgiveness that you may receive.

Then, you can use the given time to find ways on getting the amount needed once federal payments start again. In case you still haven’t found a job and are struggling financially, you can continue a loan payment pause with options like unemployment deferment, economic hardship deferment, income-driven repayment plans, and general forbearances.

Assuming that your income falls under 100% (ICR) or 150% (PAYE, REPAYE, and IBR) of the poverty line, this will result in a zero monthly loan payment according to income-driven repayment plans.

Considering Autopay

If your defaults would be removed through the fresh start program, you can subscribe for autopay to help prevent potentially defaulting again. With autopay, automatic transfer of monthly loan payments from your bank account to your loan service will happen. Also, signing up for autopay allows you to save money as you can enjoy a 0.25% lower interest rate.

Saving or Investing Money

To prepare for the repayment restart in September, you can save your money or invest it in the stock market and other options. However, the latter is more volatile, so determine your risk appetite before deciding to invest.

Creating Emergency Fund

With unprecedented events like the pandemic, it’s always best to create an emergency fund for at least three to six months of your salary. Thus, in case you get laid off, you can still satisfy basic needs, cover unexpected expenses, or pay for student loans.

Working in Private Student Loans

If you have private student loans, your lender may grant relief through reduced payments or a payment pause. Several structured relief plans may have ended in 2020, but other lenders may be willing to provide additional relief or another extension.

Get in touch with your lender, so you’ll learn more about payment reductions and additional deferments. Alternatively, you can take advantage of current loan modification programs designed for those experiencing financial difficulties. Interests, however, will still accrue. Also, you may need to work on individual applications for private loan relief because several lenders won’t keep these loan modifications or payment pauses automatically.

Settling High-Interest Debts

Granting that you have the means to pay high-interest debts while federal payments are still paused, you can do so with credit card debts, for instance. This will help you save money on interest rates.

Handling Non-government Owned FFEL or Perkins Loans

If you’ve borrowed from the Federal Family Education Loan (FFEL) Program or Federal Perkins loans that are Education Department-owned, you won’t gain access to the automatic forbearance.

You have to turn your loans into a federal direct consolidation loan first before you could benefit from the forbearance. Once you consolidate loans, the unpaid interests will be added to your principal balance. It’s best to call your loan services, so you’ll know the impact of the consolidation on your total repayment amount, loan balance, and interest rate.

Ensuring Safety Against Scam Artists

When looking for debt relief and related services, stay vigilant as many scam artists out there are just waiting for their next victim. If you receive unwanted phone calls or emails and the offer is suspicious or too good to be true, hang up or disregard the email.

Then, contact your loan servicer directly using the official phone number provided on their website or found on your bill. In case you have been a victim of these scams, send a report to the Federal Trade Commission.

Final Thoughts

Student loans can take a financial and mental toll on every borrower. Given the continuous struggles brought by the pandemic, news like federal student loan payments being paused must be favorable to you. However, you’ll also want answers to questions like “How long will federal payments remain paused?” and “Will student loans be canceled?” Another extension is possible, considering political factors and previous announcements.

However, student loan forgiveness is also still uncertain, so you might want to explore different options. To get access to reliable debt relief advice and programs, visit our page.

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Debt Reduction Services, Inc. and its financial education arm, Money Fit by DRS, offer the following housing counseling and educational services related to housing, personal finance, and bankruptcy certificates to consumers:
  • Housing Education Courses: DRS offers many online self-guided education programs classified as Financial, Budgeting, and Credit Workshops (FBC), Fair Housing Pre-Purchase Education Workshops (FHW), Homelessness Prevention Workshops (HMW), Non-Delinquency Post Purchase Workshops (NDW), Predatory Lending Education Workshops (PLW), Pre-purchase Homebuyer Education Workshops (PPW), and Rental Housing Workshops (RHW). These courses help participants increase their knowledge of and skills in personal finance, including home affordability, budgeting, and understanding the use of credit, as well as predatory lending, loan scams, and other fraud prevention topics, fair housing, rental topics, pre-purchase homebuyer education, non-delinquency post-purchase topics including home maintenance and/or financial management for homeowners, homeless prevention workshop, and other workshops not listed above relating to personal finance and housing. Course details are found below under “Housing Workshops.”
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  • Home Maintenance and Financial Management for Homeowners (Non-Delinquency Post-Purchase) (FBC): Clients receive counseling and materials on the proper maintenance of their home and mortgage refinancing. Clients can find help and resources by phone, in our Boise office, or virtually on all topics related to stabilizing their long-term homeownership.
  • Services for Homeless Counseling (HMC): Clients receive phone, virtual, or in-person (Boise) counseling to evaluate their current housing needs, identify barriers to and goals for housing stability, establish a path to self-sufficiency, and connect with emergency shelters, income-appropriate housing, and/or other community resources (e.g. mental healthcare, job training, transportation, etc.).
  • Pre-Purchase Counseling (PPC): Clients receive counseling through the entire homebuying process. Assistance may involve creating a sustainable household budget, understanding mortgage options, building their credit rating, and putting together a realistic action plan to set and achieve homeownership goals.  Additionally, clients will receive materials and resources about home inspections and other homeownership topics relevant to successfully maintaining a home.
  • Rental Housing Counseling (RHC): Via phone, in-person appointments (Boise, ID), or virtual platforms, clients receive housing counseling relevant to renting, including rent subsidies from HUD or other government and assistance programs. Topics can also address issues and concerns having to do with fair housing, landlord and tenant laws, lease terms, rent delinquency, household budgeting, and finding alternate housing.
DRS also offers the following services:
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Through such services, DRS has established financial relationships with hundreds of banks, credit unions, and creditors such as American Express, Bank of America, Barclays, Capital One, Chase, Citibank, Credit One, Discover, Synchrony, US Bank, USAA, Wells Fargo, and others.

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The client is not obligated to receive, purchase or utilize any other services offered by DRS or its exclusive partners to receive financial education or housing counseling services. Alternatives: As a condition of our counseling services, in alignment with meeting our client services goals, and in compliance with HUD’s Housing Counseling Program requirements, we may provide information on alternative services, programs, and products available to you, if applicable and known by our staff. Alternative DMP services include negotiating better repayment terms directly with your individual creditors, paying your debts as agreed, or, in extreme cases, filing for personal bankruptcy. Alternative credit and education services can be found through MyMoney.gov or the Jump$tart Clearinghouse of online financial education resources. Housing counseling alternatives can be found through HUD at www.hud.gov/findacounselor.
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Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

RentalFair HousingPredatory Lending / HOEPAPost-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. creditbudgetinghomeless preventiondebt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).

Housing Counseling and Education Fee Schedule

 

Online Education Program Fees*

Homebuyer Education Course: $59 per participant

  • Self-paced course available here, our online housing counseling and education center. Certificates will be automatically generated upon completion of the course (approximately 6-8 hours)

RentalFair HousingPredatory Lending / HOEPAPost-Purchase (Non-delinquency post-purchase workshop, including home maintenance and/or financial management for homeowners) Online Workshops: $49 per participant

  • Approximately 1 hour each

Other Self-Guided Financial Literacy Webinars (e.g. creditbudgetinghomeless preventiondebt prevention): $0

One-on-one Counseling Fees*

Pre-purchase Homebuying Counseling, Rental Counseling, Post-purchase Ownership Maintenance and Financial Management: $75

  • Session by the hour

Reverse Mortgage/HECM Counseling with Required Certificate:

  • $200†

Credit Report Fee: Paid Directly by Client

*Fees for all but our online education courses and workshops can be paid online by debit card, credit card, or PayPal or in person by cash, check or money order to: “Debt Reduction Services, Inc.” Registration fees are non-refundable 24 hours or less before the start of an in-person course or workshop. Certificates are non-transferable

*Fees may be waived for households with income of 150% or less of that identified on the US Department of Health and Human Services Poverty Guidelines Page

†Home visit counseling is available in 30 southern Idaho counties for potential HECM borrowers at additional costs to cover our travel (IRS reimbursement rates apply) and staff time ($50 per hour or fraction there).