Take steps now to prepare for when student loan repayment restarts


Since early 2020, federal student loan payments have been on hold for millions of borrowers in the United States. The payment pause, called administrative forbearance, began in March when Congress passed the Coronavirus Aid, Relief and Economic Security (CARES) Act.

But that temporary forbearance period (which President Trump later extended), is scheduled to end soon — barring any last-minute extensions or alternative student loan relief measures. So you’ll want to take steps now to prepare for when student loan repayments resume in the not-so-distant future.

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

The CARES Act and President Trump’s executive order 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 until after Dec. 31, 2020.
Interest is temporarily suspended on eligible federal student loans until the end of the year.
Collection efforts on defaulted federal student loans are temporarily on hold.

Private student loan borrowers aren’t entitled to any government-mandated relief at the moment. Yet that doesn’t mean 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.

Note: Your situation might be 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-based 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.

Tretina says, “Keep in mind that you’ll likely pay more in interest over time due to the extended repayment term. After 20 to 25 years of making payments (depending on which [income-driven repayment] plan you’re on), you can qualify for a loan discharge if you still have a balance. However, there’s a downside: the amount discharged is taxable as income.”

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, you should be eligible for the administrative forbearance provided for in the CARES Act and President Trump’s extension of benefits. Student loan servicers placed eligible federal 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 Dec. 31, 2020. So unless there’s another extension or act of Congress, regular federal student loan repayment (including automatic payments) will resume on Jan. 1, 2021.

Will student loan forbearance be extended?

Many student loan borrowers are hoping for an extension of the administrative forbearance period and 0 percent interest rate that they’ve enjoyed for most of 2020. And some borrowers who are still struggling financially desperately need more time. At the moment, however, it’s simply too soon to tell whether student loan relief measures will be extended.

Tretina says, “It will depend on what happens the next few weeks with the election, coronavirus cases, and unemployment rates. I suggest that all borrowers hope for the best, but prepare for the worst and assume that it will come to an end as scheduled on December 31.”

Learn more:
If you’re not paying student loans now, what other money moves should you be making?
Should you defer your federal student loans during coronavirus forbearance?
What to do with your private student loans during the coronavirus crisis

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