Student loans may be due again starting January 1. If so, make sure you do these 7 things.
Here’s what you need to know.
If Congress or President Donald Trump doesn’t extend student loan relief, your student loans will be due starting January 1, 2021. What about the plan to cancel student loans? Don’t count on student loan forgiveness yet. Congress passed the Cares Act — the $2.2 trillion stimulus package — in March, which provided the following temporary student loan relief for student loan borrowers:
- paused payment federal student loans
- stopped new interest accrual on federal student loans
- halted collection of student loan in default
When this student loan relief expired on September 30, Trump — through executive order — extended this student loan relief through December 31, 2020. Upon expiration, your student loans will be due in the normal course beginning January 1, 2021. To prepare for student loan repayment, make sure you do the following 7 things:
1. Contact your student loan servicer now
Don’t wait until January 1 to start figuring out your student loans. Contact your student loan servicer now so you understand all your options for student loan repayment. Specifically, double check your expected monthly payment, your current student loan balance and your interest rate. This is especially important if you’re a new graduate and your grace period is over.
2. Enroll in an income-driven repayment plan if you are struggling financially
If you are struggling financially, are furloughed or unemployed, or experienced a change in income, you may want to consider an income-driven repayment plan for your federal student loans. There are four main income-driven repayment plans: Income-Based Repayment (IBR), Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Contingent Repayment (ICR). With an income-driven repayment plan, your monthly student loan payment is typically 10-20% of your discretionary income and is based on your discretionary income, family size and state of residence. If you are already enrolled in an income-driven repayment plan, now is a good time to contact your student loan servicer to update your income. After 20 years or 25 years of monthly student loan payments, you can receive student loan forgiveness.
3. Count your payments toward public service loan forgiveness
If you are pursuing public service loan forgiveness, make sure that you received “credit” for student loan payments for the months that your federal student loans have been in student loan forbearance. The Public Service Loan Forgiveness program provides student loan forgiveness to student loan borrowers who work full-time for a qualified public service or non-profit employer and make 120 monthly payments on their federal student loans. Under the Cares Act, you are entitled to receive “credit” toward the 120 monthly payments even if you didn’t make any federal student loan payments during the period of temporary student loan forbearance. Contact your student loan servicer to ensure your student loan payments were counted properly.
4. Consolidate your FFELP Loans or Perkins Loans
Under the Cares Act, only federal student loans that the U.S. Department of Education owns are eligible for student loan relief. That means if you have any FFELP Loans or Perkins Loans, you did not receive any student loan benefits for these federal student loans. Both are considered federal loans, however, they may not be owned by the federal government. For example, FFELP Loans were issued prior to 2010 by banks and other financial institutions, while Perkins Loans are issued by colleges and universities. If student loan relief is extended, and you would like your FFELP Loans or Perkins Loans to become eligible for student loan relief, you must consolidate these loans into a Direct Consolidation Loan. When you consolidate federal student loans, your unpaid student loan interest will capitalize, which means it will be added to your principal balance.
5. Count your payments toward student loan rehabilitation
If your federal student loans are in default and you are in the process of student loan rehabilitation, make sure your non-payments during this student loan forbearance period have been counted properly. During this student loan relief period, student debt collection has been halted temporarily. If you are rehabilitating your federal student loans, you must make nine student loan payments. Contact your student loan servicer to ensure your payments have been counted properly.
6. If you are struggling financially, contact your servicer to discuss private student loans
Your private student loans are not covered under the Cares Act. Therefore, when federal student loan relief expires on December 31, 2020, there should be no change to your payments for private student loans. If you are struggling financially, contact your private student loan servicer to discuss student loan payment options, including any available forbearance or deferment options. If your lender or student loan servicer offers alternative payment options, make sure you understand the fine print, including interest costs and terms and conditions. (If there is student loan forgiveness, most likely it will be for federal student loans, rather than for private student loans).
7. Refinance your student loans
If you are not struggling financially and want to save money on your student loans, student loan refinancing is an excellent option. The goal of student loan refinancing is to get a lower interest rate, save money and pay off student loans faster. When you refinance student loans, you combine your existing federal student loans, private student loan or both into a new student loan with a lower interest rate. With student loan refinancing, you can choose your repayment term (5-20 years) and interest rate (fixed or variable). To qualify, you must be employed, have good to excellent credit (650 credit score or higher), stable monthly income, and a low debt-to-income ratio. Lenders want to ensure you have enough monthly cash flow to pay living expenses, student loans and any other debt obligations. You can apply to multiple lenders to find the best match, and you can even check your interest rate for free with no impact to your credit score before applying. You can also apply with a qualified cosigner to help get approved and get a lower interest rate.
This student loan refinancing calculator shows you how much money you can save when you refinance student loans.
Pay Off Student Loans
Want to know the best way how to pay off student loans? There are many options, and here is a good place to start: