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.