Federal student loan payments have been paused until Jan. 31, 2022, as part of the CARES Act to protect borrowers from delinquency during the COVID-19 pandemic. But as this forbearance period comes to an end, many borrowers feel unprepared to resume payments.
The vast majority (89%) of federal student loan borrowers who are fully employed said they are not financially secure enough to resume payments in February, according to a survey from the Student Debt Crisis Center. More than a fifth (21%) of respondents said that they would never be ready to resume payments.
Additionally, 88% of student loan borrowers said that coronavirus relief for federal loans was critical to their financial wellness during the pandemic.
But the federal student loan payment pause comes to an end in just 70 days, which means that borrowers will need to prepare their finances to avoid missing payments. Going into default on your student debt can lead to late fees, negative credit impacts and even wage garnishment.
Keep reading to learn more about the end of the administrative forbearance period, and compare student loan repayment options like refinancing. Visit Credible to view student loan refinance offers without impacting your credit score.
Will student loan forbearance be extended?
It's not likely that the Education Department will extend the student loan payment pause. The department announced in August that the "final extension" of federal loan forbearance would expire in January 2022. This gave borrowers a six-month grace period to financially prepare for payments to resume.
Education Secretary Miguel Cardona reiterated in October that federal borrowers should expect to restart payments when the current forbearance extension expires. Over the past month, the office of Federal Student Aid (FSA) has been notifying borrowers that collections activities will resume in February.
One option for borrowers who are unable to afford their monthly payments is student loan refinancing. Keep in mind that refinancing your federal loans into a private loan would make you ineligible for select benefits like federal student loan forgiveness programs. Browse interest rates in the table below to see if student loan refinancing is right for you.
How to prepare for when student loan payments resume
With just a few short months before federal loan payments restart, now is the time to consider your loan repayment plan. Here are a few things you can do now to prepare for the end of the forbearance period:
- Enroll in income-driven repayment. An IDR plan limits your monthly federal loan payment to 10-20% of your discretionary income. You can enroll on the FSA website.
- Apply for additional federal forbearance. Federal borrowers may qualify for up to 36 months of additional forbearance through unemployment deferment or economic hardship deferment.
- Lower your monthly payments by refinancing. Well-qualified student loan borrowers who refinanced on Credible's marketplace reduced their payments by more than $250 on average.
Student loan refinance rates are near historic lows, according to Credible data, which makes it a good time to lock in a lower rate on your student loan debt. By lowering your interest rate, you may be able to save money on your monthly payment or pay off your debt faster.
If you're still not sure if refinancing is the right move for you, use a student loan refinance calculator to estimate your new monthly payment and overall interest savings. You can get in touch with a knowledgeable loan officer at Credible to learn more.
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