It’s a bit of an odd time to be a student loan borrower. Payments and interest for many federal student loans have been paused for over two years. Meanwhile, the student loan system is undergoing significant upheaval as loan servicers change, and the Biden administration has temporarily changed the rules for existing student loan forgiveness programs while also reportedly considering broader loan cancellation.
In this time of unprecedented uncertainty, there are some actions that student loan borrowers may not want to take — at least for now.
Don’t Pay Off Your Federal Student Loans Before September
Now may not be the best time for borrowers to pay off their federal student loans (if they are in a position to do so). Government-held federal student loans are still covered by the ongoing relief provided by the CARES Act, which has paused payments and suspended interest accrual since March 2020. President Biden’s most recent extension of that relief ends on August 31, 2022, but it could be extended even beyond that date.
Given that the Biden administration is considering some form of broad student loan forgiveness, there’s no harm in holding off on a full payoff, particularly given that interest remains at zero and no payments are due until September at the earliest.
Don’t Refinance Your Federal Student Loans Before September
A big reason to refinance student loans is to get a lower interest rate. But under current law, the only way to refinance a student loan is through a private lender. And borrowers who refinance their federal student loans through a private lender would be permanently walking away from the consumer protections and program benefits of the federal student loan system — including the possibility of student loan forgiveness.
Interest rates are at 0% on government-held federal student loans until at least September, and borrowers aren’t going to get a better rate than that right now in the private student loan market.
Don’t Pay Your Student Loans During the Payment Pause
Borrowers who are covered by the ongoing student loan payment pause don’t need to make payments. Voluntary payments are allowed, and since there’s no interest accruing, any payments that are made during the suspension period will go further towards paying off your loan balance.
However, given the lack of interest accrual, there’s no real difference between making a regular payment each month and waiting until the end of the payment pause period to make a single lump sum payment. Making a lump sum payment at the end of the payment pause could give borrowers more flexibility (particularly for unexpected expenses or hardships that arise during the payment pause), as well as a bit of a strategic advantage while we wait to see what, if any, additional student loan relief the Biden administration provides.
Borrowers who have been making voluntary payments during the payment pause can request a refund of those payments by contacting their loan servicer, according to the Department of Education.
Don’t Ignore Your Student Loan Account
While it may be easy to simply ignore your student loans if they are covered by the ongoing payment pause, that might be a mistake. A lot has changed during the last two years. Several major loan servicers have exited the federal student loan system (or are in the process of doing so), and millions of borrower accounts have been transferred to different servicers.
Meanwhile, the Department of Education is providing automatic student loan forgiveness for thousands of borrowers under new program expansions — and you may not know it if you haven’t updated your contact information or recently logged in to your student loan account.
Borrowers should be sure to get their contact information and records up to date with their StudentAid.gov account, and with their current loan servicer. Your StudentAid.gov account would also provide contact information for your loan servicer if there has been any changes since 2020.
Don’t Ignore Student Loan Forgiveness News
The Biden administration has recently enacted sweeping — but temporary — changes to federal student loan forgiveness programs, including Public Service Loan Forgiveness (PSLF) and Income Driven Repayment (IDR) programs. While some of these changes will be implemented automatically, some borrowers may need to take specific steps to qualify. And there are deadlines. If borrowers don’t act, you could miss out on critical new relief, up to and including complete federal student loan forgiveness.
Given that President Biden is also reportedly considering even broader student loan forgiveness, which may also require an application process depending on how it is structured, it is critical that student loan borrowers watch for news and updates so that they don’t miss the boat on important new relief.