An automatic administrative forbearance on all federal student loan repayments and interest charges went into effect on March 13, 2020. This emergency relief measure was established to help borrowers who were financially impacted by the COVID-19 pandemic. More than 33 million student loan borrowers were supported by this temporary repayment freeze, according to the Institute for College Access & Success. Now, 18 months into the ongoing pandemic, the Department of Education announced its final extension of COVID-19 benefits, which will expire after January 31, 2022.
Before the moratorium on federal student debt, borrowers spent an average of $300 per month on student loan payments. Now, the end of the automatic federal loan forbearance means that millions of borrowers will need to prepare their finances for student debt repayment once again. If you’re a federal loan borrower, here are five ways to manage this monthly debt burden before payments restart in 2022.
1. Research your debt
Before the student loan pause ends, prime your future finances for success by knowing your current debt balance. Although this is a basic starting point when planning for repayment, it’s easy to lose track of your loan balance after months of forbearance. In fact, a recent survey of 1,020 respondents revealed that 56% of borrowers didn't know how much they owed. Researching your outstanding loan balances—and their associated interest rates—can help you understand the payment amount you’re responsible for each month.
How to access your federal student loans
To access your federal loans, visit studentaid.gov and create an online account (if you don’t already have one) to see a list of your existing federal student loans. You’ll need to provide basic information like your SSN, phone number, and email address for the account. After successfully creating an online account, you can see a list of your student loans, including details about each one like your starting balance, current loan status, existing balance, interest rate, and payment status.
How to access your private student loans
Although you might already be repaying private student loans, it’s wise to get a holistic tally of your total student debt. Since private loans aren’t in the federal loan database, you can identify them through your credit report. Through AnnualCreditReport.com, all borrowers are entitled to a free credit report from each credit bureau—Experian, Equifax, and TransUnion—every 12 months. Your credit report shows the private student loans under your name and details like creditor’s name, loan status, payment history, and outstanding amount.
2. Look into forgiveness options
Some federal student loan borrowers are eligible for loan forgiveness. Many government programs will cancel some of your student debt if you meet certain criteria. Below are a few student loan forgiveness options to look into:
- Public Service Loan Forgiveness (PSLF): Borrowers must work full-time for a qualified government or nonprofit employer while making at least 120 payments on an income-driven repayment plan. Afterward, the remaining balance on eligible loans will be forgiven.
- Teacher Loan Forgiveness: Teachers with Direct or FFEL Loans can earn up to $17,500 in loan forgiveness. You must teach at an eligible low-income school or educational service agency for five consecutive academic years.
- Forgiveness via income-driven repayment: Any borrower who’s eligible for an income-driven repayment (IDR) plan can receive loan forgiveness, regardless of their employer or profession. You can receive forgiveness on the remaining balance of your eligible loans after 20 or 25 years of repayment, depending on your IDR plan.
Not all federal forgiveness programs offer immediate financial relief from your standard monthly payment, but some do. Forgiveness programs like PSLF and IDR forgiveness can help you reduce your monthly payment and ultimately cancel a portion of your total student debt burden.
3. Apply for a payment plan that matches your finances
When you first entered repayment for your federal loans, you were likely put on a 10-year Standard Repayment Plan. This plan lets you repay your total debt in the shortest time with the lowest amount of interest charges. If you’re having difficulty making your monthly payments, you can select an alternate federal repayment plan that’s manageable for your budget. The Department of Education offers four types of IDR plans, which calculate your monthly payment amount based on a percentage of your discretionary income. This percentage can range from 10%–20% of your discretionary income, sometimes resulting in payments of $0 for eligible borrowers. Reach out to your loan servicer to learn about the repayment plan options available to you.
4. Determine if student loan refinancing is worthwhile
Student loan refinancing can make your monthly payments more manageable by extending your loan term, reducing your interest rate, or both. Refinance lenders will pay off your existing federal and/or private student loan balance and create a new private student loan for the amount it paid to your original lenders. Your new loan terms and rate are determined by factors like your income, existing debt, and creditworthiness. Refinancing your private loans can help you get a handle on your student loan payments, but refinancing federal loans has risks. For example, you’ll lose federal protections like the COVID-19 relief benefits and access to forgiveness and IDR plans. With that said, if you have strong credit and believe you might qualify for lower student loan rates, be sure to research different lenders to determine which will offer you the best rate.
5. Stay on top of ongoing federal student loan changes
Student loan policy continuously changes, especially during the pandemic. To date, as much as $10 billion in student loans have been canceled under the current administration, and advocates of student loan cancellation are calling for greater relief for borrowers. Make sure you stay informed of the latest announcements from the Department of Education leading up to the administrative forbearance cutoff date and beyond.
The idea of student loan payments resuming has a lot of borrowers on edge, but by utilizing this time beforehand wisely, you can plan ahead for less of a blow to your wallet a couple of months down the line. Research your options, put some extra money in your savings now, and keep an eye on the student loan situation as it continues to change.
Interested in other financial advice for both school and postgrad life from this author? Check out more of Callie McGill’s blogs and articles!