Students loan borrowers now have more time to organize and prepare for repayment.
The administration of President Joe Biden announced Wednesday, December 22, that it will extend the pause on federal student loans payments until May 1, 2022. This means that payments will not be resumed until mid-2022, and interest rates will stay at 0%. In a White House press release, Biden mentioned the ongoing pandemic-related problems faced by student loan borrowers to explain the extension.
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Robert Farrington, founder of The College Investor and expert on student loans, says that the extension of the student loan suspension will allow borrowers to make their transition into repayments in May. This is a win for borrowers, who could lose the child credit or have to file taxes due to the changes in student loan servicing. Borrowers have more time to organize and get ready by moving to May 1.
Originally, the student loan moratorium was set to expire Jan. 31, 2022. This latest extension is somewhat surprising given growing concerns over Omicron COVID-19. According to a statement by the U.S. Department of Education, the previous extension was described as the “final” extension.
Although Wednesday’s announcement did not mention whether this was the last extension or if more might be forthcoming, Biden did urge borrowers to begin planning for when payments will resume.
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Biden stated in the release that “As this action is taking place, I’m asking every student loan borrower to do their part too.” Take full advantage of the Department of Education’s resources to help prepare for your payments to resume. Explore income-based repayment options, consider public service loan forgiveness, and ensure you are vaccinated when you are eligible.
What to do in the Light of Biden’s Extension of Student Loan Relief
Since March 2020, federal student loans have been exempted from accruing interest and payments. Student loan balances are effectively frozen for almost two years. However, any student loans you had prior to the COVID-19 pandemic are still available for you in May.
These are some things you can do now to prepare yourself for student loan repayments in 2022.
Change your Account Information
Double-check that all your information on student loan accounts is correct, including your email address, phone number and address. There have been many changes in the past two years. You might have moved to a different address, changed phone numbers or received a new email address. Notifying your loan servicer about any significant changes will make it easier to keep in touch with your student loans.
Prioritize other financial goals
Focus on areas that can help you make your money last longer, such as building an emergency fund, paying down high-interest debt and contributing to your retirement plan.
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Rethink your Repayment Strategy
Look at your current repayment plan to see if it makes sense given your financial situation. Start looking for the best repayment plan for your situation or contact your loan servicer. Farrington recommends that you get on top of this as loan servicers are likely to be overwhelmed next year. In an interview, Farrington stated that he believes there will be chaos when payments resume.
Check out your Loan Terms and Details
Make a master list with all your student loans. Include the servicers, outstanding amounts, minimum monthly payments and interest rates. This will help you to be clear about what you owe and allow you to easily double-check the grace periods and pay-off dates for each loan.
Although we are still months away from the deadline, you can get an idea of what your next payment will cost and when it will be due. This is so that it doesn’t surprise you. Next, determine how it can be incorporated into your budget. Take into consideration any income changes. To make space for student loan payments, you may have to cut back on certain spending areas.
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Get a plan if you can’t afford payments
Reach out to your lender if you are unsure if you will be able afford the repayments once they start. Ask about possible options to avoid default or missed payments. Leslie Tayne, an attorney who specializes in debt relief, advises that you don’t try to solve this problem by scrambling at the last moment.