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The pandemic led to severe economic hardship for millions of Americans, including student loan borrowers.
As of March 31, 2021, 42.9 million borrowers currently owe a collective $1.59 trillion in student loan debt. For the class of 2020 alone, the average student loan debt amounted to just under $30,000. Fortunately, many borrowers have gotten some breathing room in the form of deferment on the payment of student loans.
However, the federal student loan assistance is set to expire on January 31, 2022. If you're still making student loan payments, it's important to understand how to prepare for these changes and what you can do to better manage your debt.
Understanding Student Loan Debt Assistance
Since March 2020, student loan borrowers have benefited from legislation that paused payments on federal student loans and dropped the interest rate on these loans to 0%. According to the U.S. Department of Education, borrowers have collectively saved $4.8 billion a month in interest due to these federal student loan assistance measures.
Student loan debt assistance has been extended several times over the last year, notably in March 2021 when Congress passed the American Rescue Plan. With the most recent extension by the U.S. Department of Education on August 6, 2021,, student loan payments will be paused for some borrowers until January 31, 2022. After this period, payments will resume.
Though there are discussions in Congress about student loan debt forgiveness — with plans ranging from $10,000 to $50,000 in forgiveness per borrower — there's no guarantee of if or when Congress will pass this legislation. As student loan debt assistance is set to end soon, it's crucial to financially prepare for this change and understand your options as far as repayment.
Preparing for the End of Federal Student Loan Assistance
If you're concerned about making your payments again beginning in February 2022, reach out to your loan provider as soon as possible to discuss your options. It's also wise to ask what your minimum monthly payment and total loan balance will be once payments restart.
Start saving every little bit you can now in a separate account. Even a runway of a few months may help you make the minimum required payments on your loan.
If you're having trouble finding suitable work or don't have a steady income, you may be able to enroll in an income-driven repayment plan that better aligns with what you can afford to pay right now. If you have a federal student loan, you may be eligible for this option. While most private loans don't offer this option, borrowers can inquire about their ability to refinance as well as deferment and forbearance options.
As you navigate your job search, it may be a good idea to be strategic about the job opportunities you consider. For instance, some employers offer tuition remission programs that help you pay down your loans if you stay with the company for a certain amount of time. Additionally, several federal agencies offer employees up to $10,000 a year to help repay federal student loans. There's also the Public Service Loan Forgiveness Program, which forgives federal direct student loans for those who work full-time for a governmental entity or non-profit organization and make 120 qualifying student payments.
Alternative Options for Addressing Student Loan Debt
A loan deferment or forbearance are two other alternatives. A deferment, which can last up to three years, delays your student loan payments. You don't have to make payments during this time. A forbearance also temporarily suspends your student loan payments, but the interest still will accumulate. Generally, you can only receive forbearance for up to 12 months at a time and for a total of three years over the life of your loan.
If you want to defer your loans or get a forbearance, you'll have to make a request to your loan servicer, so it's best to call them as soon as possible to find out how to apply.
If you have a private loan, the rules may be different, but you might have the option to extend your repayment term — for example, by moving from a 20-year repayment term to a 30-year term. That way, you can spread out your payments, so they're more manageable every month.
If you have a federal student loan, you'll likely have more options. But it helps to make a plan now rather than wait until February 2022. Contact your loan provider now, get all the relevant information you need about your loan, and then review your finances to determine how you can structure your payments in a way that's manageable and affordable for you. If you think you could benefit from the individualized support of a financial professional, don't hesitate to reach out for guidance.