What Borrowers Need to Know About New Student Loan Late Payment
Student borrowers now have some leeway. The Biden administration recently extended the student loan repayment pause to August 31, 2022 from the original May 1 deadline. Borrowers now have until September to plan and prepare for debt repayment.
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Here’s a quick look at what the latest late payment means for borrowers with federal and private student loans, and the best ways to start preparing now for making student loan repayments.
Federal Loans: What Borrowers Need to Know
The repayment break has been welcomed by borrowers with federal student loans. Federal student loans have not seen interest accrue since 2020 and not until September 2022. No payments are due at this time and borrowers owe no principal or interest repayments.
Charlie Javice, head of student solutions, Chase, and founder of Frank, said borrowers won’t need to make payments on their federal student loans until September 1, 2022.
What the freeze does not impact is the timing of federal loan forgiveness programs. Javice uses the example of public service loan forgiveness, which forgives loans tax-free if you have direct federal loans, work full-time for a qualifying nonprofit or government organization for 10 years, and make 130 qualifying payments on an income-based repayment plan.
“Borrowers with a direct loan, who work full-time for an eligible employer during the suspension, will receive credit for the forgiveness during the freeze as if on-time monthly payments had been made,” Javice said.
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Private loans: what borrowers need to know
Borrowers with private student loans from private providers were unfortunately not included in the payment pause. The pause was only extended to federal loans.
Javice said borrowers with private loans should always make regular payments under the agreement with their lender. Those who have trouble making payments have few options available to them. Private student loans can be refinanced or consolidated to help reduce the interest rate. Certains agents de prêt peuvent également offrir l’option d’un taux réduit si vous vous inscrivez au paiement automatique ou à la facturation sans papier. (Contact your service to see if it offers this option.)
For borrowers who are struggling to make payments on private loans due to financial hardship, Javice recommends contacting your managing agent to discuss adjusted repayment options. Borrowers may be eligible for a temporary deferral or an income-based plan, if available.
Tips for repayment planning and preparation
Although there is no confirmation that this is the final loan break or that there may be another extension, borrowers can use the coming months to familiarize themselves with their personal finances. Here are some strategies to prepare you to pay off your student debt.
Plan to add the loan to your budget
After a few years of hiatus, it is essential that borrowers are able to readjust their budgets to include the additional expenses of their loan.
If you don’t have a budget yet, now is the time to create one. Christina Klenotic, senior vice president and head of brand and strategic partnerships at Laurel Road, recommends using the 50/30/20 rule where 50% of your budget goes to fixed expenses like rent and car payments, 30% goes to flexible, variable spending on expenses like groceries, and 20% goes towards financial goals like building an emergency fund and saving for retirement. Use a designated tracking method, such as a dedicated spreadsheet or app, that keeps you within that budget.
Set realistic savings goals
Some borrowers who are considering paying off their student debt may be worried that they won’t be able to save as much money once the break is lifted. Klenotic recommends determining a percentage of your income that you can save, even if you’re working to pay off your loans. Use your budget to guide you.
What about borrowers who fear that they will run out of savings they have built up during the break?
“If you’re worried about depleting your savings, consider planning scenarios to replenish your savings, such as forecasting what you’ll need to save over the coming year to replenish your nest egg,” Klenotic said.
Explore refund options
Borrowers can consider financing options like refinancing or consolidating their student loans. Javice said borrowers can also explore whether income-driven repayment plans are right for you and your current financial situation. If you’re eligible, these plans can help lower your monthly student loan payments after the break is over.
Sign up for automatic payment
Even if you don’t have the option of a reduced rate to sign up for autopay, it’s still a good idea to sign up to make sure you don’t miss any payments. If you were signed up for autopay before the payment pause, Javice said borrowers will need to reaffirm that they want to re-enter autopay.
Don’t panic about the pause ending and debt repayments resuming. Klenotic said borrowers don’t have to pay off student debt immediately, nor should they be expected to. Remember that student debt is considered “good debt,” meaning debt that is used to pay for something that has long-term value.
“Taking these steps to budget and save are great first steps to paying down debt,” Klenotic said.
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This article originally appeared on GOBankingRates.com: What borrowers need to know about the new student loan payment deadline