Since March 2020, federal student loan payments have been on pause — with no payments required, no interest charged and all collections activities on hold. However, this period of administrative forbearance is set to expire on Sept. 30, 2021, meaning all payments will resume on Oct. 1.
Some experts say that an extension is possible but unlikely due to an uptick in the American economy as vaccination rates and employment rates increase. Here’s what to know as the payment pause comes to an end.
Payments resume on Oct. 1, 2021
Millions of borrowers are currently taking advantage of the administrative forbearance period initiated by the CARES Act last March, with an estimated 35 million borrowers qualifying for relief. Eligible loans include all federally held student loans, plus privately held FFEL loans that are in default.
With the forbearance period set to expire on Sept. 30, borrowers who have not been making payments could be in for a shock. However, Federal Student Aid will be in contact as the forbearance period nears its end to remind you about payments, and you’ll receive a billing statement at least 21 days before your payment is due.
In the meantime, you can visit the Federal Student Aid website and your loan servicer’s website to ensure that your contact details are up to date so that you’re informed when payments are set to resume.
Will the student loan payment pause be extended?
“It’s not very likely that the forbearance will continue past October,” says Debt.com chairman and CPA Howard Dvorkin. Therefore, every student should anticipate paying their student loan interest and principal balance in October.
Secretary of Education Miguel Cardona has also said that the idea of an extension isn’t out of the question, but that for now borrowers should plan for the Sept. 30 deadline. Cardona explained that the Education Department will base the extension on where the economy is at the time.
Borrowers who are in a good financial position do have the option to make payments during this time, which will reduce the principal balance when interest charges resume. “Even if [the payment pause] does get extended, it’s a great idea to pay right now with interest rates paused,” Dvorkin says. “That way, you’ll pay less in interest fees when they start up again — which is probably soon.”
What to do if you can’t afford student loans after payments resume
Even if current coronavirus-related relief is not extended, federal student loan borrowers have additional relief options available if they have trouble making monthly payments after the payment pause ends.
The current administrative forbearance period is automatically granted to all federal student loan borrowers. However, the federal government also offers general forbearance outside of this emergency relief. You may qualify for up to 12 months of forbearance at a time (up to three years total) if you are unable to pay your loans due to financial difficulties, medical expenses or changes in employment. For more details, you can contact your loan servicer.
Income-driven repayment plans
Income-driven repayment plans set your monthly payment based on a percentage of your discretionary income. Typically you’ll make between 20 and 25 years of eligible payments, and then the rest of your balance will be discharged. If your income is low enough, your payments could drop to $0. If you’re interested in applying, contact your loan servicer to see which plan best suits your needs.
Loan forgiveness options
Borrowers working in certain occupations may qualify for federal programs that forgive student loan balances after a number of years. For example, the Public Service Loan Forgiveness (PSLF) program forgives loans for people in eligible public service jobs after 10 years of payments on an income-driven repayment plan. Teacher Loan Forgiveness, on the other hand, requires five years of employment as a teacher in a high-need area in exchange for up to $17,500 in federal debt discharged.
While refinancing federal student loans will eliminate the options listed above, it could be a viable option if you took out your federal loan when interest rates were high. Private student loan lenders are currently offering extremely low interest rates, so refinancing into a different rate or term could help you lower your monthly payment.