With the implementation of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act, the government suspended federal loan payments and set interest rates on existing loans at 0%. Initially, this emergency forbearance program was supposed to last a few months. But as the pandemic continued to impact people’s jobs, the government extended federal student loan forbearance multiple times.
On August 24, 2022, President Biden announced his student loan debt forgiveness plan, which will forgive up to $10,000 in federal student loan debt and up to $20,000 for Pell Grant recipients. Debt forgiveness is limited to borrowers earning less than $125,000 a year or families earning less than $250,000.
In addition, the Biden administration extended the payment pause on federal student loans until December 31, 2022, with payments resuming in January 2023. This will be the final forbearance extension, so federal student loan borrowers must plan accordingly. Here’s how to prepare for the end of the student loan payment pause in January.
5 Things To Do Before January 2023
You’re not alone if you’re wondering how to prepare for restarting student loan payments. An estimated 44 million borrowers have federal student loans, and many are probably wondering the same thing. Before January arrives, here are five things you can do to prepare for federal student loan payments to resume:
1. Review Your Loan Information
You might not have checked on your loans since March 2020, and a lot could’ve changed since then. Your address or email may differ, and your loans may have been transferred to a new lender. Between now and December 31st, check on your loans to ensure your contact information is correct and to remind yourself of the total payment amount.
Perhaps you can’t remember who your loan servicer is, or you think your loans may have been transferred to a new servicer. If that’s the case, you can look up your information on the National Student Loan Data System by entering your Federal Student Aid ID. It will share who services your loans and show your current balances.
2. Consider a New Payment Plan
If you’re worried you can’t afford to make your student loan payments, applying for an extended repayment plan could be a solution. Consider looking into an income-driven repayment (IDR) plan. These plans offer extended repayment terms of 20 to 25 years instead of the 10-year term that comes with a standard repayment plan. Your payments will be determined based on your income and family size, which means they could be lower than your original payments.
The U.S. Department of Education’s Loan Simulator tool can help you find an IDR plan that meets your needs.
3. Check Your Autopay Settings
December 31st is the student loan pause end date, and payments will resume in January. Those who’ve set up automatic payments should review their autopay settings to ensure their designated payment date makes sense.
If your payment date or payment amount needs to be updated, you can do so before repayment resumes. For instance, you might decide to increase your payments because your income has increased since emergency forbearance began. Or you could opt for a new payment date that aligns better with your employer’s paydays.
4. Research Student Loan Refinancing
Refinancing your federal student loans could be another option if you’re concerned about your ability to repay. Depending on your loan, you might be able to extend your repayment term or access a lower interest rate. This could result in lower payments that fit better into your budget. Refinancing multiple loans into one will also give you a single payment, which could be simpler to manage than several payments.
But remember that when you refinance federal student loans with a private loan, you will no longer qualify for federal benefits like forbearance, loan forgiveness, or an IDR plan. Still, refinancing has its advantages and could make sense depending on your situation. If you decide to go this route, ELFI can offer you a rate quote with the Find My Rate tool. Getting a quote won’t impact your credit score.
5. Rework Your Budget
No matter what you decide about your federal student loans, forbearance has been in place for a while, and you’ll likely need to rework your budget to accommodate a new monthly payment. Review your budget and determine where you can fit the payments in. You may need to cut your spending in certain areas to afford the added cost, and even though payments won’t resume due until January, it’s always good to plan ahead.
The Bottom Line
Like most federal student loan borrowers, you’re probably asking yourself, “what can I do to prepare for student loan repayment?” Fortunately, there are several steps to take. Reviewing your loan information, looking into new repayment plans, checking your autopay settings, researching student loan refinancing, and rebalancing your budget will all help you prepare for payments to resume.
