Good news, as of Friday, December 4th, the U.S. Department of Education extended the pause on student-loan repayments put into place as a result of the coronavirus pandemic through January 2021. That means, if you have student loans, you do not have to resume payment until February of next year. The average student loan payment is $400 a month (Federal Reserve Bank of NY).
The current federal student loan relief as of December 4th includes:
- Automatic forbearance to all federal loan borrowers.
- Automatically waiving interest on federally held student loans.
- Stopping all collection activities on federal student loans in default.
The payment pause has given millions of student loan borrowers a further break, but they will start up again eventually. Here are some things to know on how to best prepare for 2021.
Check in with your debt now
If you have student loans, take inventory of your finances now and assess your 2021 plans for repayment. After nearly nine months of student loan payment pauses, you may be out of the habit of making these payments or used to setting aside the money for something else like an emergency fund or paying off other debt. It is important to make a plan, even if you are on unemployment right now, so you are not caught off guard come February.
Log back into your accounts, take a look at your balance and monthly bill and recalculate reintegrating payments back into your budget. If you haven’t been negatively impacted by the pandemic, you might consider increasing your payments for a while to pay off your loan faster. If you are on unemployment or have reduced income, it is still a good idea to check in now and think about your options for deferment or an alternative payment plan.
You have options
If you do not think you are going to be able to resume student loan payments in February, you have a few options.
If you are on a standard payment plan, you can switch to an income driven plan that determines payments based on your income and yields generally lower monthly payments. Depending on your income, income-driven payments could be as little as $0. If you are already on an income-driven plan, make sure to check in and recertify all of your information and employment status before February - it takes about four to six weeks to switch to an income-based repayment plan. Ask for a recalculation if your employment and income have recently changed.
If your income and credit score are strong, you may be able to refinance your student loan for a lower rate. Contact your lender to see if that’s a good option for you.
If you do not think you will be in a financial position to start making payments in February, consider applying for loan deferment which will pause monthly payments for up to 36 months. But you have to reapply every six months and show proof of unemployment benefits and active work seeking. Do remember though, that pausing or lowering monthly payments (aside from the government loan forbearance programs), means you will end up paying more over time, especially if interest continues to grow.
Before you make any changes to your repayment plans, make sure to research and consider short- and long-term implications. If you are not sure what you should do or have questions about your unique circumstances, contact your lender directly for assistance.
Don’t hold out for debt forgiveness
While there are possibilities for another stimulus check, an extension of the student loan pause, and even some loan forgiveness from the new administration, none of that is certain. It is best to assume that loan payments will resume in February as currently stated and plan your 2021 financials around that. Any changes will be a welcomed bonus!