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Student loan borrowers have even more time to get organized and prepare to resume repayment.
The administration of President Joe Biden announced on Wednesday, December 22, that it will extend the pause on federal student loan payments through May 1, 2022. This means that payments will not resume until mid-2022 and interest rates will remain at 0%. Biden cited ongoing pandemic-related challenges facing student loan borrowers as reasoning for the new extension in a White House press release.
“Extending the student loan pause will give borrowers more time to transition into repayment in May,” says Robert Farrington, student loan expert and founder of The College Investor. “Given the number of changes to student loan servicing, this is a win for borrowers who may be missing out on the child tax credit, need to file their taxes and more. By moving to May 1, borrowers have a little extra breathing space to get organized and prepare.”
The student loan moratorium was originally scheduled to expire on January 31, 2022. The latest extension is a bit of a surprise amid growing concern over the Omicron COVID-19 variant: The previous extension was previously described as the “final” extension, according to a statement from the US Department of Education.
While Wednesday’s announcement made no reference to this being the last extension, or whether more could follow, Biden implored borrowers to start planning now when payments resume.
“As we take this action, I ask all student loan borrowers to do their part as well,” Biden said in the statement. “Take full advantage of the Department of Education’s resources to help you prepare for the resumption of payments, explore options to lower your payments through income-based repayment plans, explore Public Service Loan Forgiveness, and ensure that he is vaccinated and boosted when eligible. ”
What to do in light of Biden’s student loan relief extension
Student loan balances have been effectively frozen for nearly two years, with no interest accruing or payments required on most federal student loans as of March 2020. However, any student loan debt you owed before the COVID-19 pandemic will still be waiting for you in May.
Experts say you shouldn’t count on your debt disappearing in the meantime, because massive student loan forgiveness, not even the $10,000 Biden promised during the election campaign, is unlikely.
Here are some things you can start doing now to prepare for student loan repayment in 2022:
Update your account information
Double check that your information is up to date in your student loan accounts, such as your address, phone number, and email address. Because so much has changed in the last two years, you may have moved to a new address, changed your phone number, or gotten a new email address. By alerting your loan servicer of any important changes, it will be easier for you to stay in touch with your student loans.
Prioritize other financial goals
Between now and May 1, focus on the areas where you can make your money go further, like paying off high-interest debt, building your emergency fund, and contributing to your retirement plan.
Reconsider your payment strategy
Take a look at your current payment plan and see if it still makes sense for your current financial situation. If not, start researching the payment plan that’s right for you or contact your loan servicer for help. Farrington advises getting up to speed as soon as possible because loan servicers will likely be overwhelmed next year. “I think there will be a lot of chaos when payments resume,” he recently told NextAdvisor in an interview.
Review the terms and details of your loan
Create a master list of your student loans, including servicers, outstanding balances, minimum monthly payments, and interest rates. That way, you’ll be clear about what you owe and can easily check payment dates and grace periods for each loan.
Make a budget
We’re still a few months away, but as we near the end of the forbearance period, get an idea of how much your next payment will be and when it’s due in May, so you’re not caught off guard. . Then see how you can fit it into your current budget and take into account any changes in your income. You may need to readjust or reduce spending in certain areas to make room in your budget for upcoming student loan payments.
Have a plan if you can’t afford the payments
If you think you won’t be able to pay your payments once repayment begins, contact your lender and ask about possible options to avoid late payments or defaults. Leslie Tayne, an attorney who specializes in debt relief, says you shouldn’t “fight at the last minute and try to figure this out.”