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Student loan payments have been on hold for nearly two years. Come may, it is due to resume.
Many tens of millions of borrowers will find themselves in a different financial situation than they were in March 2020, and a different payment plan may make more sense for them as a result.
Meanwhile, during the pandemic, several of the largest federal student loan companies have announced that they won’t do so anymore, meaning many will have to adjust to a new service in the spring.
Given all the changes, experts say borrowers should start preparing to resume payments now.
Here’s what you need to know.
Can the payment pause period be extended again?
It’s understandable if you don’t quite think billing will resume in May.
The break has been extended five times over the past 24 months, and when the US Department of Education announced it was extending the break in August last year, it said it would be the last break. Then it announced in December that borrowers would get more time.
Higher education expert Mark Kantrowitz said, “You can cry a wolf a few times before borrowers give up believing that the down payment and interest waiver period will be over.”
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However, a White House spokesperson said the Department of Education was “working to ensure a smooth transition to reimbursement in May.”
Because student loan providers are likely to be overwhelmed at the time, borrowers should contact their lenders as soon as possible, said Betsy Mayotte, president of the Institute of Student Loan Counselors, a nonprofit organization.
You’ll want to know which payment plan is right for you now, and be sure to keep your contact information up to date.
What if my servers are changed?
Three companies that provide federal student loan services — Navient, Pennsylvania Higher Education Assistance (also known as FedLoan) and Granite State — recently announced that they were ending their relationship with the government.
As a result, about 16 million borrowers will have a different company to deal with by the time payments resume, or soon after, according to Kantrowitz.
Double-check that your provider has your current contact information, so you receive all notifications about the upcoming change, experts say.
Scott Buchanan, executive director of the Student Loan Service Alliance, a trade group for federal student loan service providers, said affected borrowers should get multiple notices.
Come on, Buchanan said, if you accidentally send a payment to your old server, the money should be transferred to your new service.
What if I can’t start paying again?
If you are still unemployed or dealing with other financial hardship due to the pandemic, you will have options in May.
First, file for economic hardship or unemployment delay, experts say. These are the ideal ways to defer federal student loan payments because interest does not accrue under them.
If you don’t qualify for either, you can use patience to keep your bills on hold. But keep in mind that the interest will go up and your balance will be larger – sometimes much larger – when you resume payment.
If you expect to continue to struggle for some time, it may make sense to enroll in an income-driven payment plan.
These programs aim to make borrowers’ payments affordable by capping their monthly bills with a percentage of their discretionary income and waiving any of their remaining debt after 20 or 25 years.
How do I decide on the right payment plan?
The pandemic has changed the lives of many people.
If your circumstances seem different than they did nearly two years ago, it may make sense to review the payment plans available to you and find the one that best fits your current situation.
Meanwhile, the law has also changed.
Student loan forgiveness is now tax-free until at least 2025, thanks to a provision included in the $1.9 trillion federal coronavirus stimulus package that President Joe Biden signed into law in March last year. This policy is likely to become permanent.
This may make income-driven payment plans more attractive, since they often come with lower monthly bills and borrowers likely won’t face a huge tax bill at the end of 20 or 25 years of payments.
But if you can afford it, the standard payment plan is only 10 years.
To calculate how much your monthly bill will be under different plans, use one of the calculators at Studentaid.gov or Freestudentloanadvice.org, Mayotte said.
If you decide to change your payment plan, Mayotte recommends submitting this application to do so with your provider now.
“I have serious concerns about some significant delays in services,” Mayotte said.