Many borrowers with federal student loans are completely confused about what is happening (or not happening) at the moment, and rightfully so. After all, the original emergency measure for federal student loans that paused payments and fixed rates at 0% has been extended six times so far, but only for a few months at a time.
Then there are rumors from President Biden and his administration that some amount of student loan debt may be forgiven any day now, but nobody seems to know for sure how much or who qualifies. Add in all the recent waivers meant to help borrowers qualify for Public Service Loan Forgiveness (PSLF) and income-driven repayment plans, and trying to keep up with it all becomes a dizzying experience.
So, what do you need to know about student loans? And how can you prepare for whatever comes next? Let’s break down the latest updates on federal student loans to help you prepare.
Current Deferment Period Ends August 31, 2022
First, you should know that the current deferment period for payments on federal student loans is scheduled to expire on August 31, 2022. Interest rates are fixed at 0% until then as well, and collections activity on federal student loans is still paused during this time.
While nobody knows if this emergency deferment period will be extended again within the next few months, many experts believe it will be extended beyond November’s midterm elections and into the new year.
That said, you should still have a tentative plan for making your loan payments ready just in case. And if you are worried you won’t be able to make payments on your student loans come September, you can contact your loan servicer and check into switching repayment plans.
If you do have the cash but you don’t want to make payments until you have to, Carson Lang of Test Prep Insight suggests making your student loan payment to yourself by putting it in a savings account. That way, you can get in the habit of making student loan payments again with the side benefit of building up your savings.
“In other words, whatever your loan payment amount was prior to the freeze, continue paying yourself that amount, but to a dedicated investment account,” says Lang.
If you don’t want to put your funds at risk, you can also make payments to a high-yield savings account.
Get Organized With Your Student Loans
The U.S. Department of Education is still in the midst of shaking up which companies are servicing federal student loans. And even if your loan servicer will be the same, you may not remember if you haven’t made any payments on student loans for more than two years.
Either way, it makes sense to check on all these details now, which you can do by logging into your account dashboard at studentaid.gov. Beyond making sure you know who your loan servicer is, you should also take a look at what your monthly payment will be on or after September 1, 2022.
In the meantime, borrowers should make sure their loan servicer has several ways to contact them if they need to. After all, they’ll need a way to reach out if the emergency deferment period is extended again, or if some part of their student loan debt is forgiven at some point.
“Borrowers should be reviewing all received correspondence from their student loan servicer to stay on top of their student loan situation,” said Elaine Rubin, who is the Director of Corporate Communication and a financial aid expert at Edvisors. “If a borrower isn’t receiving correspondence, it’s a good time to log into their student loan account and make necessary updates to contact information.”
Look Into The PSLF Waiver Before October
According to financial planner Eric Kroll of Student Loans Over 50, taking steps to qualify for the Public Service Loan Forgiveness (PSLF) waiver before October 31, 2022 is a high priority for borrowers in the public sector as well as those working for non-profits. This waiver was set up in late 2021 to help those seeking PSLF receive credit for past periods of repayment on loans that would not qualify otherwise.
According to the U.S. Department of Education, any prior period of repayment can count thanks to the waiver, regardless of the loan program, the type of payment made, and whether payments were made in-full or on time. This waiver is available to borrowers with “Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022,” they write.
Kroll points out that the waiver has a lot of different features to it that can really accelerate a borrower’s route to forgiveness. However, you have to act before the end of October 2022 to qualify, which may require you to consolidate old loans and send in an application before that date.
With that in mind, you should look into the PSLF waiver now if you believe you could qualify.
“Waiting until the last minute to deal with this could really hurt,” says Kroll.
Keep An Eye Out For IDR Waiver Updates
In April of 2022, the U.S. Department of Education also announced some assistance for borrowers who are seeking loan forgiveness through income-driven repayment plans. The adjustments they announced will include “conducting a one-time revision of IDR payment counters to address past inaccuracies,” they write. Some borrowers on income-driven plans who are close to forgiveness already may see their loans discharged, and the processes involved in tracking payments are supposed to be improved.
Not only that, but all payments made will be counted toward income-driven repayment plans according to this measure. This includes payments made on any plan with any type of federal student loan.
That said, borrowers on income-driven plans may need to wait a while to hear what they need to do next, if anything.
“ED will begin work on implementing these changes immediately, but borrowers will not see the effect in their accounts until fall of 2022,” writes the U.S. Department of Education.
Learn more about the various IDR Waiver benefits here.
Don’t Count On Student Loan Forgiveness… Yet
Finally, borrowers shouldn’t count on receiving any student loan forgiveness until it actually happens. And even then, borrowers should know the day-to-day impact of having some of their student loan debt forgiven could be minimal.
The current rumors are that President Biden will offer student loan forgiveness of $10,000 per eligible borrower, but that income limits are likely to apply. Some reports are putting an announcement as imminent with college graduations taking place nationwide.
Fred Amrein, who is the founder of PayforED, also points out that any lump sum forgiveness borrowers receive will come in the form of a reduction of their current balance. This means that, in many cases (such as for borrowers on income driven repayment), the monthly payment won’t change.
“In some cases, a borrower’s payment could go up if they are using an IDR method due to the reduction in debt and the IDR calculation,” says Amrein.
There have been a lot of student loan announcements taking place over the last few months – and many more may be coming.
For student loan borrowers, the best course of action is to understand their own loan options and get organized for their own personal situation. This could include understanding potential loan forgiveness options, repayment plans, or other hardship options when student loan payments do resume.