After the COVID-19 pandemic, the federal government immediately suspended student loans. All federal student loans were put into forbearance and the interest rate was lowered to 0% on March 13, 2020. Although student loan payments were initially set to resume in 2020, they have been delayed several times by the Trump and Biden administrations. Another new development has occurred in federal student loan payments. Find out how to prepare to make your loan payments again.
When can student loan payments resume?
The September 30th, 2021 deadline for student loan payments had been extended. However, on August 6, 2021, The U.S. Department of Education announced a new extension. Student loan payments will resume on January 31, 2022.
Biden stated in an August 6 statement that “this will give the Department of Education, borrowers more time to prepare for restarting student loan payments.” It will ensure a smoother transition and minimize loan defaults and delinquencies, which can hurt families and undercut our economic recovery.
The Department of Education made it clear that this would be the last extension of loan payments. Although January 31 may seem far away, it’s a good time to get started.
How do you prepare for student loan payments?
Since federal student loan borrowers were required by law to pay loan repayments, it’s been over a year. It’s clear that many borrowers don’t have the financial resources to pay them back. These are the four things that you can do in order to prepare for your loan payments.
Find out how much owe you
You may not have checked your federal student loan account in a while. You may not have even checked your federal student loan account if you have graduated since the pause in loan payments.
To prepare for your loan payments to begin again, the first step is to determine how much you owe. Although the amount might seem overwhelming, it is better to confront the problem head-on and see the bigger picture.
Calculate your monthly payment
Next, you need to determine what your monthly student loan payment will be. Your monthly payment should not change if you are on a regular repayment plan. Your payments might change if your income is dependent or you are on a graduated repayment plan. You should now determine what your payments will be and start planning.
Create an emergency fund
Student loan borrowers will have less income starting February 2022. This will mean that less money is available for other financial goals or financial emergencies.
Now is the best time to ensure you have an emergency fund. Are you unsure how much to save? Financial experts differ on how much to save, but most advise saving enough to cover 3 to 6 months of expenses.
Allow Payments to be made now
You don’t need to wait for student loan payments to make space in your budget. It’s actually better to get started now. It’s better to start now than to get used to the extra cost in your budget. To track your monthly expenses, and to create a sustainable budget, you can use online personal finance tools.
What should you do with the money that you have set aside to make these payments?
There are several options. You can first use the money to fund your emergency fund or any high-interest debt. Or you could use it for another financial goal. You can also make student loan payments earlier. Your payments will have a greater impact because there is no interest.
Another option is to put the money you would use for loan payments in high yield savings accounts. You have two options: make one lump-sum payment of your loan balances or use the money for something else.
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What to Do if You Can’t Pay Your Bills
Millions of Americans still face financial hardship due to the pandemic. A recent Pew Research Center report showed that half of all non-retired adults will face financial difficulties due to the pandemic.
These financial difficulties will make it difficult for many to pay student loans. If you aren’t sure you can afford February’s student loan payments, here are some things you can do.
Change to an income-driven payment plan
You might consider changing to an income-driven repayment plan if you have been using a standard plan for repaying your loans. The federal government offers four income-driven plans that cap your monthly payments at a percentage of your income. The majority of plans limit your payments to 10% of your discretionary income.
To help you calculate what your monthly payments would be under different payment plans, there’s a loan simulation on the federal financial assistance website. You can request an income-driven plan through the Department of Education.
Apply to loan deferment or forgiveness
You can request deferment of your loans if you are unable to pay any monthly payments in February. You can pause student loan payments by applying for deferment or forbearance. They are used in different situations.
The type of loan you have may cause interest to accrue while you pay your monthly payments. If you do not pay the first payment, it will capitalize. Forbearance and deferment are available. Make sure you make your payments until your request has been approved. This will ensure that your loans do not go into default or delinquency.
What is the deal with student loan forgiveness?
Many borrowers are hesitant about making any significant progress in paying off their loans. This is because they hope that the Biden administration will forgive some federal student loans.
Biden, upon his assumption of office, has requested Congress to approve a limited amount of student loan forgiveness. He has also asked the U.S. Department of Justice to examine whether he can use executive action to forgive student loans.
It is impossible to predict what actions if any., the administration will take regarding student loan forgiveness. For borrowers with high amounts of student loan debt, it is unlikely that loan forgiveness will completely erase all of their debt.
The uncertainty means that borrowers have the opportunity to evaluate any changes in their situation during the period leading up to February 2022. However, once the student loan payments are resumed, each borrower will need to decide if they want to take on their loans aggressively or make minimum payments.
What are you waiting for? Get your finances under control. Student Loan Forgiveness Application is here to help you to forgive your loan.