If you’re like over 37 million student loan borrowers, you probably haven’t made a single payment on your student loan debt since March, when invoices have been put on hold due to coronavirus crisis.
That hiatus can end at the end of the year, which means it’s time to figure out how you’re going to make payments in January.
Ministry of Education suspended student loan debt payments, suspended accrued interest, and halted collections on past due federal loans in March under the CARES Act. In August, President Donald Trump signed an executive decision that extended the relief until December and said he could push it back next year.
But it’s far from clear that another extension will come from Trump, and the government has been unable to reach agreement on further stimulus in the meantime. Now, student loan experts are telling borrowers to prepare for the end of the hiatus and resumption of payments in 2021.
“Borrowers should sort of prepare for the worst and hope for the best,” said Betsy Mayotte, president and founder of the Institute of Student Loan Advisors.
Save your debt now
Those with student loan debt should take stock of their finances and reassess their payment plan as soon as possible, said certified financial planner Lauryn Williams, founder of Worth Winning Financial Company in Dallas.
After nine months of skipping student loan payments, borrowers may be out of the habit or accustomed to putting money aside for other things, like building an emergency fund or paying off other debts.
“It’s worth investing your time to make sure you’re clear on what your plan is going forward, so you don’t get caught off guard,” said Williams, a member of CNBC’s Council of Financial Advisors.
Borrowers need to reconnect to their accounts, view their monthly bill, and recalculate their total loan repayment schedule. with tools available on the website of the Ministry of Education, said Mayotte.
For those who have not been financially affected by the pandemic, the time may have come to increase the monthly amounts to pay off their loans faster.
“The name of the game is paying the least amount of money over time,” she said.
Of course, many borrowers may have experienced unemployment or loss of income since March due to Covid-19. If that’s the case, it’s still important to check your student loan debt now, Mayotte said.
Experts fear the education loan system may be overwhelmed by the number of borrowers who have struggled and will need to seek help, she said. This means borrowers who know they won’t be able to make the same or monthly payments should request a different repayment plan or a deferral as soon as possible.
Change your repayment plan
Borrowers who need to reduce or suspend monthly payments have several options.
Those with a standard repayment plan can switch to an income-based repayment plan, which will typically reduce monthly payments by increasing the time it will take to pay off the loan in full, said Bridget Haile, Head of Successful Loans. borrowers at Summer, a company that helps borrowers simplify and save on student debt.
In the future, borrowers can either recertify for an income-focused plan once a year as needed, or revert to a standard repayment plan if their circumstances change, she said.
Those who already have an income-based repayment plan should make sure they recertified before January, especially if their annual date was during the break period. If you are already on an income-based plan and are still unable to pay your monthly bill, a recertification or request for a recalculation given your current situation may result in a lower amount.
This is especially beneficial if you’re working on student loan cancellation in any program, Haile said. This is because payments in income-oriented plans can be as low as $ 0 and will still count towards the total number of months you will need for forgiveness in 10, 20 or 25 years, depending on the program.
Apply for a suspension of unemployment
For borrowers who are unemployed due to the pandemic, cannot afford to make payments, and do not qualify for a $ 0 monthly bill on an income-oriented plan, request a deferral of unemployment on their student loans may be the best. option.
Deferring unemployment will usually suspend monthly payments for a total of 36 months, but borrowers will need to reapply every six months and show proof of unemployment benefits and are actively looking for work. Interest will also be suspended, but only for subsidized loans – it will continue to accrue for unsubsidized loans.
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Those who are not unemployed and still cannot make monthly payments can request other forms of deferment.
Of course, suspending or reducing monthly student loan payments likely means you’ll pay more over time, especially if interest continues to rise. Before making any changes, borrowers should be sure to consider the short- and long-term implications of a different payment plan, said Elaine Griffin Rubin, senior contributor and communications specialist at Edvisors.
If you’re not sure what to do or have a question about your specific situation, it’s best to contact your lender directly for help, Griffin Rubin said, adding that he didn’t. there is no penalty for making a change before resuming payments.
“Just because you’re settling down doesn’t mean you have to make payments right away,” she said.
Don’t expect another break or debt forgiveness
For many borrowers, an uncertain future adds to the confusion for student loans. People are eagerly awaiting to see if Trump will extend the break and are considering the possibility that President-elect Joe Biden will be able to write off some student debt when he takes office.
Still, experts say borrowers shouldn’t be counting on them either. It is not clear that there will be a further pause on short-term payments and interest by Trump or through another congressional stimulus bill.
“While we all want and hope Congress will provide financial assistance to distressed borrowers, we must be aware that we cannot just hope and pray that Congress passes anything in a more politically divided environment. that we. ‘ve never seen it, ”said Will Sealy, co-founder and CEO of Summer.
And there are many other questions surrounding the cancellation of student loan debt, such as whether Biden could do it through executive action and what the tax implications would be for borrowers.
In the meantime, the consequences of missing payments can be dire – borrowers can face additional fines, could potentially default and their credit scores suffer.
“Nothing is guaranteed until he’s really there,” Griffin Rubin said. “Don’t expect a decision to be made.”
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