Despite the pressure to cancel up to $50,000 of student debt, President Biden has decided to focus on targeted student loan cancellation. This lack of wide-scale student loan cancellation means that borrowers shouldn’t wait for forgiveness.
The U.S. Department of Education has provided debt relief to federal student loan borrowers by pausing their payments without incurring interest. The pause is set to end on January 31, 2022.
As a result, student loan borrowers can expect their monthly bills to resume soon. Taking the following steps can help you be prepared for repayment.
Know When Payments Are Due Again
With the extended pause ending in January 2022, borrowers can expect their first payment to be due again sometime in February. This depends on the date they started paying their loans. The student loan relief has been extended many times during this pandemic, with last month being the most recent. According to the White House, this extension will be the final one.
Consider Your Payment Options
If you can’t afford to make payments in February 2022 due to unemployment or other financial hardship, there are options to consider. You can request for economic hardship or unemployment deferment. These can help you suspend your bills without accruing interest under them.
If you don’t qualify for both, you can continue postponing your payments by using a forbearance. But with this option, your interest and balance will add up once you resume paying.
Another option to consider is enrolling in an income-driven repayment plan. This program sets your monthly bills at an amount intended to be affordable based on your income and family size.
Review Your Payment Plans
Start deciding on the right payment plan that best fits your current financial situation. The standard repayment plan is 10 years if you can afford it. A new provision was included in the $1.9 trillion COVID-19 stimulus package, such as the tax-free status for student loan forgiveness.
Under this provision, income-driven repayment plans may be more appealing as they come with lower monthly payments. Borrowers also don’t need to face a potentially large tax bill after 20 or 25 years of payments.
If you’re planning to change your repayment plan, it’s best to submit an application to your student loan servicer as soon as you can.
Other Steps to Take
While student loan forgiveness is still possible, here are other things you can do in the meantime to get ready for repayment.
- Make sure that your servicer has your current contact information over the next four months. Notify them if you’ve moved location.
- If you’re enrolled in automatic payments, inform your servicer regarding any changes in your banking information.
- You may want to hold off on refinancing your student loans for a lower interest rate.
- Set aside money in your budget for emergency savings and credit card debt. It’s best to keep it in a high-yield savings account.