Student loan payments start again in October – here’s how to prepare

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Since March 2020, federal student loan payments have been on hold for millions of borrowers in the United States. But that temporary forbearance period (which President Biden extended in January 2021) is scheduled to end in September — barring any last-minute extensions or alternative student loan relief measures. If you have federal student loans, take steps now to prepare for when student loan payments resume in the not-so-distant future.

What benefits do federal student loan borrowers have during the coronavirus pandemic?

The CARES Act and subsequent extensions have provided several relief measures to help federal student loan borrowers cope during the coronavirus pandemic. For most borrowers, the three most meaningful student loan benefits include:

  • Eligible borrowers don’t have to make payments on federal student loans or defaulted FFEL Program loans until after Sept. 30, 2021.
  • Interest is temporarily suspended on eligible federal student loans and defaulted FFEL Program loans until after Sept. 30, 2021.
  • Collection efforts on defaulted federal student loans and defaulted FFEL Program loans are temporarily on hold.

Private student loan borrowers aren’t entitled to any government-mandated relief at the moment. Yet this doesn’t mean that private lenders aren’t willing to offer hardship assistance. If you can’t afford to repay your private student loans right now due to COVID-19 challenges, you should give your lender a call to ask whether temporary relief measures are available.

How to prepare for the end of federal student loan forbearance

It’s smart to start taking steps now to prepare both financially and mentally for when your monthly student loan payments resume. Below are four ideas you may want to consider.

1. Continue making payments

The coronavirus pandemic has impacted household budgets across the country. Yet if you can still afford to make your student loan payments before the federal payment suspension ends, it could be a great way to repay your debt faster and save money.

Kat Tretina, certified student loan counselor, explains why making manual payments on your federal student loans during this time could benefit you. “Due to the CARES Act, the interest rate on federal loans is set at 0%, so any payments you make will go toward the principal rather than interest charges,” she says. “Making payments now will reduce how much interest accrues later on.”

If you’re wondering how much these interest-free payments might save you, both in repayment time and money, a student loan calculator can help you crunch the numbers.

2. Pay yourself

Another option you might consider is making student loan payments to yourself while monthly payments to your student loan servicer are on hold. Even if you can’t afford to pay yourself a full student loan payment, you might be able to make a partial payment and tuck those funds into a high-yield savings account.

Once normal payments resume (or are about to resume), you can consider two options. First, you could make a lump-sum payment to your servicer before the interest-free period expires on your loan. Alternatively, you might opt to keep the cash you saved in an emergency fund or use it to provide some extra cushion in case you have trouble keeping up with your monthly payments down the road.

However, keep in mind that everyone’s situation is different. If you owe high-interest debt or hold private student loans, you might want to consider making some different money moves while your federal student payments are on hold.

3. Apply for other types of help

Coronavirus relief measures aren’t the only way to get help with your federal student loans. The Department of Education offers other types of assistance to eligible student loan borrowers under normal circumstances.

For example, once this automatic forbearance period ends, you can apply to put your federal student loans into deferment status if you need to temporarily reduce or postpone your payments. Keep in mind, however, that interest may continue to accrue on your loans even while your payments are on hold.

Applying for an income-driven repayment plan is another option you might want to consider. If you qualify, your monthly payment will adjust according to your income and family size, and you could have your remaining balance discharged after 20 to 25 years of payments.

4. Consider if refinancing is right for you

Finally, you may want to see if refinancing your federal student loan would benefit you financially. Student loan refinancing might help you save money over the length of your repayment or lower your monthly payment size.

Of course, it’s important to think carefully about whether refinancing is a good fit for you — especially if you owe federal student loan debt. Should you decide to refinance, you’ll lose federal benefits like access to income-driven repayment plans and eligibility for loan forgiveness.

FAQ about coronavirus student loan forbearance

Who can take advantage of administrative forbearance?

If the Department of Education owns your loan or if you have a defaulted FFEL Program loan, you should be eligible for the administrative forbearance benefits. Student loan servicers placed eligible student loans into automatic administrative forbearance. You can call your servicer if you have questions.

When do federal benefits expire?

Federally mandated administrative forbearance will expire on Sept. 30, 2021. So unless there’s another extension or act of Congress, regular federal student loan repayment (including automatic payments) will resume on Oct. 1, 2021.

Will student loan forbearance be extended?

Secretary of Education Miguel Cardona recently said that he isn’t completely opposed to extending the break on federal payments. “We’re looking at it,” he stated during the 2021 Education Writers Association conference. “Obviously we’re going to always take lead from what the data is telling us and where we are as a country with regards to the recovery of the pandemic. It’s not out of the question, but at this point it’s Sept. 30.”

Steve Muszynski, founder and CEO of Splash Financial, predicts that student loan payments will likely resume in October due to the uptick in the economy and current vaccination rates. “However, it also seems plausible that the government may introduce a targeted student loan cancellation around the same time to reduce negative optics of starting up payments for 40 million-plus Americans,” he says.

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Written by
Michelle Black
Contributing writer
Michelle Lambright Black is a credit expert with over 19 years of experience, a freelance writer and a certified credit expert witness. In addition to writing for Bankrate, Michelle's work is featured with numerous publications including FICO, Experian, Forbes, U.S. News & World Report and Reader’s Digest, among others.
Edited by
Student loans editor