- On Friday, the Biden administration directed the U.S. Department of Education to extend the federal student loan payments freeze for an additional six months.
- His long-term agenda also includes cutting up to $ 10,000 in student loan debt per borrower, a free public college, and more.
- Here are four other options President Biden could have an impact on your money.
President Joe Biden’s administration announced that it would extend the federal government’s suspension of payments one last time to January 31, 2022.
Since the pandemic began in March 2020, student loan payments have been suspended. With the new extension, borrowers enjoy almost two years of payment relief.
Before the January 31st extension is announced on Friday, payments should resume after October 1st. In a press release, the Department of Education said January 31st is the “final end date” for this final extension.
“This will give the Department of Education and borrowers more time and security as they prepare to resume student loan payments,” Biden said in a statement. “It will also ensure a smoother transition that minimizes credit and default, harming families and undermining our economic recovery.”
Many experts believe he will continue to use his executive powers and legislative agenda to address the student credit crisis. But what exactly it can achieve is unclear, so these experts recommend hoping for the best but planning the worst.
“You have to start thinking about your payments because they will eventually be reactivated – there is no getting around that,” said Robert Farrington, founder and CEO of The College Investor. “And while the promise to make student loans is tempting and exciting, I don’t think borrowers should plan it.”
If you’re wondering how Biden and his administration are going to deal with student loan debt, here’s what we know so far – and what you can do now, regardless of what may happen.
Biden’s long-term student loan assistance plan
Biden has announced that he will support a number of political plans that require a mix of executive power and congressional legislation. For example, Senator Elizabeth Warren and Senate Democratic chairman Chuck Schumer have suggested that Biden have existing executive power to initiate full lending with the stroke of a pen, but others argue that Biden would need Congressional approval to get some adopt these measures.
Partially cancel student loan debt
Biden has publicly endorsed the cancellation of up to $ 10,000 in student loan debt for each borrower in response to the coronavirus pandemic, but that policy would only apply to federal student loans held by the Department of Education.
In addition to canceling student loan debt, Biden has proposed free tuition fees for students who meet certain requirements. Your family’s income would have to be less than $ 125,000 a year to qualify, and the plan would only apply to two- and four-year public colleges and universities, not private schools. The only exception to this is if you are attending a private historically black college or university (HBCU) or minority service institution (MSI). Remember, there are 17 states that already offer toll-free community college programs (here’s a list).
Student loan repayment
Under Biden’s plan, the current income-based repayment plans for federal student loans would become more generous. Anyone who earns $ 25,000 or less annually owes no payments on their federal student loans, and no interest would be accrued on those loans.
For anyone making more than $ 25,000, Biden would cap loan repayment on federal student loans to 5% of disposable income (income minus taxes and essentials such as housing and food).
After 20 years of making payments through an income-related amortization plan, the remainder of the loans would be waived and you would not owe any income tax on the waived amount. Biden also wants to be included in income-based repayment plans automatically.
Granting of loans to the public service
Biden is providing $ 50,000 in student loans over five years under the Public Service Loan Forgiveness (PSLF) program. This is shorter than the existing forgiveness program, which is 120 monthly payments or 10 years, but the amount would be capped at $ 50,000. There is no maximum in the current PSLF program. Biden also wants to automate the registration process for this program.
Student loan deferral under Biden
Now that we know that the repayment period for student loans has been extended by a further six months, we have answered your questions about the payment period for student loans and the interest period of 0%.
Will the student loan deferral be extended?
The Ministry of Education has extended the deferral of federal student loans until January 31, 2022.
When is my payment due at the earliest?
Student loan payments will resume in late January, but that is not necessarily when your student loan payments are due. In the next few months, keep an eye out for a statement or a notice from your credit service provider for your exact due date. The Department of Education recommends visiting their FAQ page regularly for general updates.
What if I want to keep making payments?
Any payments you make during the deferral period will count towards the principal as soon as all interest accrued before March 13, 2020 and all fees (for defaulted loans) have been paid.
Making voluntary payments now will help you pay back your credit balance faster, but Farnoosh Torabi, personal finance editor at CNET (which, like NextAdvisor, is owned by Red Ventures) and host of the So Money podcast says you’re in This year you shouldn’t worry about paying off your student loans too aggressively. Instead, you should focus on building an emergency fund or paying off high-interest debt.
“Even if we assume the loans will be due again in early 2021, I don’t recommend working particularly hard this year to pay off your government loans. Pay the minimum amounts as needed, but not a cent more, ”writes Torabi.
If you are determined to pay back your student loans now, these strategies can help you.
Does the deferral period start with the repayment?
No, your student loans are in the balance. If you haven’t made any voluntary payments on your student loan debt, you are in the same situation as you were about a year ago.
For example, if you had a traditional repayment schedule before March 13, 2020, your repayment status will be the same total number of months as before. This means that it doesn’t necessarily take longer to repay your loans, but rather that the expected repayment date is postponed. You always have the option of paying off your student loan debts earlier.
An income-based repayment plan works differently and any suspended payments during this deferral period will continue to count towards forgiveness. So be sure to speak to your loan service provider if you have specific questions about your repayment status.
So now, take control of your student loan debt
Although Biden has promised to grant extensive student loan waivers, it has not yet done so. So it is in your best interest to hope for the best but plan for the worst. We’ve put together tips from experts on how you can take control of your student loan debt now.
1. Talk to your loan service provider
You don’t need to contact your student loan service provider or take special action to temporarily suspend your payments, but it is important to check with your student loan administrator and check your mail or email for the latest information on your loans and the grace period. Make sure your address and email address on your online portal are up to date. Your loan service provider should always be your point of contact for specific concerns or questions.
2. Review your budget and create a plan
Now is a great opportunity to review your finances and come up with a plan for resuming payments. You may need to cut spending in certain areas to make sure your budget is sufficient for the payment to be due, or to draw from your emergency fund. Even if the grace period has been extended, it is still a good idea to take this time to prepare for the future. Sooner or later your monthly payments will start again and it is better to stay ahead of the curve.
3. Consider an income-based repayment plan (IDR)
This type of repayment plan can result in lower, cheaper monthly payments, depending on your taxable income and family size. For example, if you earn less than 150% of the federal poverty line, your payments can be as low as $ 0.
“The most important thing we’ve been recommending to all borrowers over the past few months to prepare for a possible resumption of their payments is to confirm that they have the cheapest repayment plan,” says Ferastoaru.
To register, go to this Bundesstudienhilfe page, click on “Apply now” above and start an application. If you already have an IDR plan and your income has changed due to COVID-19, ask your lender to double-check your income before payments resume. If you have an IDR plan and make all of your payments on time, your loans will be waived at the end of the repayment period – even if they are not paid back in full.
4. Review other postponement or deferral options
If an income-based repayment plan isn’t affordable, you may be able to apply for another type of deferral or deferral after that deferral, says Ferastoaru. Extra procrastination and indulgence outside of COVID-19 aid can give you more time to get back on your feet, but should be a last resort.
For example, there is an unemployment deferral that temporarily suspends payments on your student loans. It covers your interest on subsidized student loans, but not on unsupported loans, and is limited to three years.
There is also a postponement in economic hardship that is similar to postponing unemployment, except you receive government or federal assistance, earn below 150% of the state poverty line, and must work at least 30 hours a week to qualify. The final option is to apply for a federal deferral, which can last up to three years. But unlike a deferral, the state does not cover any of the interest on your loan.