Michelle Singletary: Get ready for repayment of student loans after pause
Sun., April 17, 2022
Four more months.
That’s how long federal student loan borrowers have before their loan payments start up again. Or maybe not.
It’s possible another repayment reprieve may stretch the loan pause until the end of this year. But, even if that happens, if you have federal loans, it’s time to start planning for the day when your payments will need to be paid.
Here’s what you need to know about the most recent extension, including major relief for borrowers who were in default before the payment pauses began.
Has anything changed with the payment pause?
The relief stays the same, continuing to apply only to eligible federal student loans. The extension for student loan repayment, interest and collections runs until Aug. 31.
The pandemic-related payment pause, first offered in March 2020 for federal student loans, includes a 0% interest rate, suspension of loan payments and suspension of collection actions on delinquent and defaulted loans.
But there was major news for people who were in default.
The pause provided borrowers in default temporary protection from collection activities, but that’s all. The Biden administration announced that these borrowers won’t go back into collections after the pause ends.
This will greatly relieve the financial pressure on millions of borrowers, including those from minority and low-income households, said Abby Shafroth, interim director of the National Consumer Law Center’s Student Loan Borrower Assistance Project.
“These borrowers will no longer be subject to the financially destabilizing collection practices that the government uses to collect on student loans once they’re in default,” Shafroth said.
What help will I get if my loans were in default before the pandemic?
When someone defaults on their student loans, tax refunds can be seized, wages can be garnished and part of Social Security payments (including disability benefits) can be withheld. Defaulted borrowers can’t qualify for income-driven repayment programs and hardship deferments.
“Once a family struggles with unaffordable student loan debt, they can have the social safety net pulled out from underneath them,” Shafroth said.
At the start of the pandemic, under the Cares Act, collection actions for eligible defaulted loans were suspended. But many people worried about what would happen once the pause was over.
The Education Department said these borrowers will now receive a “fresh start” and re-enter repayment in good standing.
“At the end of the payment pause, the negative mark of default will be removed from their credit,” the Education Department said in a statement through a spokesperson.
Borrowers won’t be subject to collection actions such as a tax refund offset or wage garnishment.
The Education Department said that in the coming weeks, additional information will be posted at studentaid.gov and borrowers will receive direct communication about how this relief will affect them directly.
How should I prepare for when my loan payments start up again?
The first thing you should do is make sure your loan servicer has your most current contact information. Don’t assume if the servicer doesn’t contact you that you’re off the hook.
Update your contact information with your loan servicer and in your studentaid.gov profile.
Open your mail – snail and email. Seriously. Ignoring your responsibility will only make things worse.
Make sure you know what company is handling your student loans, said Betsy Mayotte, president of TISLA (The Institute of Student Loan Advisors), a nonprofit organization that offers free student loan advice.
“During this whole COVID pause, we’ve had a lot of servicer upheaval, and loans have been and continue to change who the servicer is,” Mayotte said.
Navient, which was a major student loan servicer, exited the federal servicing business last year.
I won’t be able to afford my loan payment when they start up again. What can I do to lower it?
If you’re still struggling and you haven’t already done so, look into lower payment options, including various income-based repayment plans.
In some cases, depending on your income, family size and where you live, your monthly payment could be extremely low, even zero.
For more information about the plans go to studentaid.gov.
“We can almost always find a solution for people who are struggling with federal loans,” Mayotte said.
If your payment won’t be affordable and you need to apply for an income-based payment plan or hardship deferral, start putting in the paperwork no later than July to make sure it’s processed in time for the first payment due date, Mayotte said.
Is there any help for people with Parent Plus loans?
If you have a Parent Plus loan and the monthly payment is unaffordable, there is something you can do.
Mayotte recommends borrowers look into applying for the Income-Contingent Repayment Plan by consolidating their Parent Plus loans into a Direct Consolidation Loan.
Can I still take advantage of the PSLF waiver?
Under the Public Service Loan Forgiveness, or PSLF, program, the remaining balance of a borrower’s debt is forgiven after 120 qualifying monthly payments.
Many people thought they were working their way to forgiveness only to find out they weren’t eligible because the type of loan they had wasn’t eligible, or they weren’t in a certain type of income-driven repayment plan or working for a qualifying employer. Others complained their loan servicers misled them about their eligibility for PSLF or steered them to more forbearance or deferral options.
As part of an effort to address problems with the PSLF, the Education Department introduced last year a time-limited waiver that would count previously ineligible payments toward PSLF, including for people with previously ineligible types of federal student loans.
You still have time to take advantage of the waiver. But don’t wait until the last minute.
Borrowers who are working in public service but have not applied for the program should do so by Oct. 31. You can find out more about the waiver at studentaid.gov/pslf.
How likely is another payment pause?
The Biden administration has backtracked before on ending the relief. But it would be wise to start thinking now about how to incorporate your loan payments back into your budget. The relief will end eventually, so get ready for repayment.
But what about the promised student loan forgiveness?
You can keep hope alive, but it’s still unclear whether widespread loan forgiveness will happen.
There’s so much disagreement about this debt, you’d be wise not to count on your student loan obligation being wiped out or greatly reduced.
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