It’s time now to prepare for the end of student loan relief.
Here’s what you need to know.
Student loan relief — which Congress passed through the Cares Act and President Donald Trump signed into law — has provided more than 40 million student loan borrowers with historic student loan forbearance during the Covid-19 pandemic. After two extensions from Trump and two more from Biden, this student loan relief will end on January 31, 2022. In total, student loan borrowers will have received more than $110 billion of student loan cancellation as a result of temporary student loan forbearance. The Biden administration has said it will not extend student loan relief beyond January 31, which means you should be prepared to restart federal student loan payments at your regular interest beginning February 1, 2022. Here is how to prepare for the end of student loan relief.
1. Refinance your student loans
If you want a lower interest rate, lower monthly payment or both, then student loan refinancing should be your first move. Rates are at historic lows, with variable rates starting at 1.74% and fixed interest rates starting at 2.30%. When you refinance student loans, you get a new private student loan that is used to pay off your old student loans. You can choose a fixed or variable interest rate and choose a student loan repayment term from 5 to 20 years. You can also decide to refinance federal student loans, private loans or both as well as both college and graduate school loans. With federal student loan payments restarting, now is a good time to apply to refinance so you can get approved before student loan payments start beginning February 1, 2022. To get approved, you typically need to be employed or have a signed job offer, a credit score of at least 650, stable monthly income, and a low debt-to-income ratio. If you are pursuing public service loan forgiveness, or think you’ll need federal forbearance, deferment or income-driven repayment, for example, then you’ll want to refinance private loans only and keep your federal loans outstanding.
For example, let’s assume you refinance $70,000 of student loans at 8% with a 10-year repayment term. If you refinance these student loans with a 3% interest rate and 10-year repayment term, you could save $173 each month and $20,804 total.
This student loan refinancing calculator shows you how much you can save when you refinance student loans.
2. Get a lower student loan payment
If you’re struggling to pay off student loans or pursuing public service loan forgiveness, then you may be using an income-driven repayment plan. (How to get student loan forgiveness). This student loan repayment option bases your monthly student loan payment on your income, family size and state of residence. During the Covid-19 pandemic, you may have changed jobs, become unemployed, or received a different income. Now is a smart time to update your income and family size information because it may impact your monthly student loan payment. You can also evaluate which income-driven repayment plan — IBR, PAYE, REPAYE or ICR — that you are using to ensure that you’re maximizing student loan forgiveness. Contact your student loan servicer with any questions.
3. Apply for student loan forgiveness
Here’s how to apply for student loan forgiveness. Biden has cancelled $11.5 billion of student loans since becoming president. The U.S. Department of Education announced that $2 billion of student loans will be cancelled within weeks. If you’re looking for wide-scale student loan forgiveness for all your student loan debt, you won’t find it. Why? Biden is focused on targeted student loan cancellation. However, you can still get total student loan cancellation or partial student loan cancellation through programs such as student loan forgiveness, borrower defense to repayment, teacher loan forgiveness and total and permanent disability, for example. (Here’s how to apply for limited student loan forgiveness).
4. Update your contact information
This may sound basic, but make sure you update your contact information with Federal Student Aid (FSA) and your student loan servicer. The Education Department may need to send you notices regarding your student loans and the restart of student loan payments. You may have moved during the pandemic, so it’s important to check in with your student loan servicer. This is also a good time to update your autopay information in case you have new account information. Multiple student loan servicers have announced plans to exit student loan servicing. Approximately 16 million student loan borrowers, including you, may get a new student loan servicer next year. There’s no need to panic: your student loan interest rate, student loan balance and student loan repayment terms won’t change. However, you may need to work with a new student loan company for student loan repayment. The Education Department will contact you if you’re impacted.
The most important thing you can do to prepare for the end of student loan relief is to start preparing now. Don’t wait until January to get a student loan repayment plan. Here are some popular options to pay off student loans faster: