Federal Student Loan Forbearance Extended Yet Again

The White House has once again extended the federal student loan payment pause as it battles lawsuits threatening to derail its sweeping student debt forgiveness plan.

The extension could stretch no later than June 30, 2023, the Department of Education said Tuesday. But if the Supreme Court decides the fate of Biden’s plan to cancel up to $20,000 in student debt per borrower before June 30, forbearance could end sooner.

This marks the eighth time the government has lengthened interest-free forbearance, though the Biden administration had insisted Dec. 31 would mark the final expiration date.

“Callous efforts to block student debt relief in the courts have caused tremendous financial uncertainty for millions of borrowers who cannot set their family budgets or even plan for the holidays without a clear picture of their student debt obligations, and it’s just plain wrong,” Secretary of Education Miguel Cardona said in a statement.

Payments will resume 60 days after the pause ends, the Education Department said. Unless the president orders forbearance to be extended once more, the repayment clock starts again 60 days after the department is allowed to implement the program or the litigation is resolved, or 60 days after June 30, 2023 — whichever comes first.

The extension is a win for activists and borrowers who called on the Biden administration to extend forbearance after several legal challenges put the student debt cancellation plan on hold.

“We applaud President Biden for extending this pause on student loan payments now and for affirming his intent to cancel student debt in the months ahead,” Mike Pierce, executive director of the Student Borrower Protection Center, said in a statement.

During forbearance, first ordered by then-President Donald Trump in March 2020 as the COVID-19 pandemic took hold, federal student loan borrowers are allowed to skip payments. The interest rate on their loans has been set to 0%, and collections activities have been halted on defaulted loans.

Roughly 40 million borrowers who were supposed to start paying their bills again in January now will get additional time without them. After nearly three years without student loan bills and an uncertain future for cancellation, however, not everyone should continue the payment holiday.

When exactly will payments resume?

We don’t know exactly when payments will resume. The Education Department’s announcement Tuesday leaves forbearance’s expiration date up in the air, depending on if and when the Supreme Court weighs in on legal challenges circling Biden’s student debt relief plan.

If the Supreme Court rules on the lawsuit before June 30, 2023

If the Supreme Court rules on Biden’s plan before June 30, borrowers with remaining balances will need to start repaying loans 60 days after the court decision.

If the Supreme court does not rule before June 30, 2023

If the Supreme Court has not made a decision on Biden’s debt cancellation plan by June 30, forbearance will end. Borrowers will need to start repaying loans 60 days after June 30.

Should you make payments during the extension?

The decision to start repaying during forbearance depends on your remaining balance and ability to pay.

If your cancellation amount under the stalled Biden plan would wipe out your student loans, don’t make payments during this extension. Instead, put your student loan bill money aside, if you’re able. This money should be kept in a separate account so it doesn’t get mixed into your normal expenses and is available for you to make a lump-sum payment if cancellation never comes to fruition.

Borrowers enrolled in a forgiveness program — like Public Service Loan Forgiveness — will see their payment count increase each month, whether or not a payment is made. These borrowers should not make payments.

Borrowers who will still have a student loan balance if cancellation is applied should make payments during the pause extension, if they can. Using this time to make payments will get you closer to the finish line sooner and more cheaply.

It comes down to basic math, explains Dave Christensen, a Wisconsin borrower who paid off about $30,000 in student loans during the pandemic pause. “They aren’t charging you interest, so take advantage and your balance goes down a lot quicker that way,” he says.

Whether or not Biden’s broad debt cancellation plan survives, you’ll still have loans to pay back. All money you pay toward your loans until forbearance ends in 2023 will go toward your loan principal. Even partial payments help.

Start planning for repayment now

Regardless of how you handle the remaining forbearance period, start preparing for repayment now. The pause could end sooner than June 30 if the Supreme Court rules on Biden’s debt cancellation plan before then.

“Practice making these payments now,” says Kristen Ahlenius, director of education at The Money Line, a workplace financial wellness company. “Take the equivalent of what you would pay toward your student loans and use these funds to increase your emergency fund or pay off some other liabilities. You’ll be prepared in case student loan forgiveness remains struck down and improve your financial health in the interim.”

Call your loan provider to confirm what your monthly payments will be. This amount could decrease if cancellation happens, but it’s best to plan for the worst. If you won’t be able to cover the full amount, ask about enrolling in an income-driven repayment plan. These plans cap your monthly payments at a certain percentage of your disposable income, lowering them to a more manageable amount while also extending the life of your loan. If your income is low enough, your payments could be $0.

Is $20K Student Debt Forgiveness Still Going to Happen?

No one knows for sure when — or if — student loan forgiveness is coming.

As of now, you should plan for payments on your federal student loans to resume in January 2023, especially if you were counting on debt cancellation to erase your balance entirely.

Why? A federal judge in Texas has struck down the Biden administration’s plan to erase up to $20,000 per borrower. The plan is also under an injunction arising from another lawsuit, and several more lawsuits are winding their way through the courts. Any of them could derail debt relief, too.

While the Department of Education is seeking to overturn the court rulings, there’s no guarantee these roadblocks will be cleared before January — or ever.

Unless the president orders forbearance to be extended once more, the clock starts again in January. Loans will resume accruing interest, and missed payments eventually will leave a big dent on your credit history.

Will student loan forbearance be extended?

We don’t know. The White House has not yet committed to pausing payments beyond the Jan. 1, 2023, deadline. It’s possible, though, as forbearance has been extended multiple times since 2020.

Student borrower activists are pressuring the Biden administration to immediately extend forbearance.

“The Biden administration cannot resume payments on Jan. 1,” said Student Borrower Protection Center deputy executive director and managing counsel Persis Yu in a press release. ”It must use all of its tools to fight to ensure that borrowers receive the debt relief they need.”

But Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents the companies that handle federal student loan accounts, says student loan servicers are moving forward as though payments are restarting in January.

Are the lawsuits likely to succeed?

We don’t know. It’s unclear if any of the lawsuits to stop student loan cancellation will be successful in the end.

However, the two lawsuits that are most challenging have led to a complete halt of the program. In one case, a judge deemed the plan unlawful. The Biden administration quickly appealed the decision, but getting a final answer while the case moves through the courts will likely take months. In another, a court of appeals left an injunction in place, preventing any debt relief while the case moves through the system.

Borrowers should make plans based on the current situation, says Buchanan. That is: Student loan cancellation is blocked, and payments restart in January.

“You have these big programs and big decisions using authority that is untested in courts,” Buchanan says. “That can cause a lot of delays or this could mean it doesn’t happen.”

That stings for those watching from the sidelines.

“It makes me incredibly frustrated,” says Dave Christensen, a Wisconsin borrower who repaid his loans during the pandemic and is awaiting a refund he worries he might have to repay with interest. “We tend to drag things out for so long trying to become victorious for our agenda and our policies, we lose track of how this actually affects people.”

Can I still apply for debt cancellation anyway?

No. For now, the Department of Education has shut down new applications for relief until lawsuits play out. The White House says 26 million borrowers have applied, with 16 million already processed and ready to roll.

Under current guidelines, you must apply by Dec. 31, 2023.

Will I have to return my refunded payments?

Yes, but not all at once. If you sought a refund for payments made during the pandemic, your new payment amount in January will reflect a larger balance, which will include the refund.

If you have not sought a refund, it might be best to wait until the debt cancellation lawsuits play out. If cancellation still happens and you paid your loan balance down below the amount of cancellation you qualify for, your refund will be automatic.

If you still want to put in a manual refund request, you have until the end of 2023 to do so.

What if I cannot afford to make payments?

Take action now, urges Dwayne Kwaysee Wright, a professor of higher education administration at George Washington University.

“It’s going to take a while,” Wright says. “Take a day, take a lunch break, maybe take an extra hour, call your loan provider right now, and have a conversation about January 1st.” He says borrowers should be clear on the amount of their upcoming payments and ask servicers about options that could lower their bills.

An income-driven repayment plan caps your payments at a certain portion of your total income, potentially lowering your monthly bills while extending the loan period. Payments can be as low as $0.

If you’re already enrolled in an IDR plan, you won’t have to recertify your income before July 2023.

If you’ve lost your job, an unemployment deferment can let you skip payments altogether until you start earning again.

What happens to the other parts of debt relief?

The other provisions of debt relief are unchallenged so far, but they could be impacted in the future.

  • Changes to loan forgiveness programs greatly streamlined the process for borrowers in public service, teachers whose schools were closed, and those whose schools defrauded or misled them.
  • An income-driven repayment waiver will broaden which past payments — including partial or late payments, or time spent in certain types of forbearance or deferral — count toward the 240 to 300 needed for forgiveness.
  • Fresh Start” will allow borrowers with defaulted loans the opportunity to resume repayment in good standing, without penalties and catch-up payments.

Cecilia Clark, Eliza Haverstock and Trea Branch write for NerdWallet.

Image from 123rf.com

Image ID: 36403388

What Student Loan Cancellation Could Mean for Your Budget

The Biden administration announced plans for federal student loan relief last month. The plans include the cancellation of up to $10,000 in debt for borrowers who meet income requirements and up to $20,000 for Pell Grant recipients. Beyond cancellation, the proposal also extended the pause on loan repayment through the end of the year and introduced a new income-driven repayment plan aimed at lowering monthly payments.

For now, these plans are just, well, plans. And plans can change. Many experts expect the proposal to face legal challenges, so don’t make any big money moves just yet. Here’s what you can do now to prepare for relief, and what it could mean for your budget.

There’s still uncertainty

If the proposal moves forward unchanged, it could still take time for your budget to feel the effects. Loan forgiveness should be automatic for roughly 8 million people because they’ve already supplied income data, according to the Department of Education. The Biden administration aims to make an application available for everyone else by early October. Relief is estimated to come four to six weeks after completing the application.

“There’s still a lot of unanswered questions,” says Kyle Liseno, head of the student loan department at the nonprofit agency American Consumer Credit Counseling. “I’ve been telling people, just kind of stay tuned to studentaid.gov, which is the Department of Education website.” You can also sign up for application notifications on the Department of Education’s subscription page. The application deadline is Dec. 31, 2023. But borrowers are advised to apply before Nov. 15 of this year to get relief before the payment pause ends.

Here’s what could happen if relief withstands legal challenges

It could free up more money for expenses and goals

The newly announced relief plans could erase or reduce a substantial amount of your federal loan debt. (Private student loans are not covered.) The impact on your budget could be massive, especially during a time of heightened inflation and interest rates.

“$10,000 could be a great amount for someone, and it could really help them in terms of just getting back on their feet and getting rid of financial debt,” says Maggie Klokkenga, a certified financial planner in Morton, Illinois.

If you don’t qualify for forgiveness, you’ll still benefit from the pause on loan payments, which has been extended through Dec. 31, 2022 — interest-free. If you keep making payments during the pause, your balance will drop. If you hold off, you can put some of the money you previously spent on payments toward more urgent expenses, such as rent or high-interest debt.

But even if you’re eligible, you won’t be handed a $10,000 check. Klokkenga suggests looking at your previous student loan statements to remind yourself of the minimum payment amount. Then, you can allocate some or all of that amount (depending on how relief impacts your balance) toward saving for an emergency fund and other financial goals, “whether it’s vacation, short term, or whether it’s retirement, long term,” Klokkenga says. “And then you can still have some fun with it, but it’s not to say this is a windfall or that you just won the lottery.”

Liseno says he’s already seen many people pursue financial goals while payments have been paused. “All this deferment has shown that when student loans are off the table, young people are buying homes now. They’re buying cars. That money is going into the economy,” he says.

Think of what you would do with the extra cash if your $300 minimum monthly payment got slashed to $150. Or $0. Klokkenga says using an online tool, such as Utah State University Extension’s PowerPay, can help you create a debt payment or spending plan based on your student loan savings.

You might not feel a difference

Federal student loan payments have been on pause since March 2020. This latest extension should feel familiar.

The relief plan “is going to help a lot of Americans with … their future budgets,” Liseno says. “Because most people haven’t had to pay in almost three years.”

If you took advantage of the pause, you’ve likely already moved money around elsewhere in your budget. Or, if you’ve been responsibly socking the monthly payment amount away in savings, you’ll be accustomed to parting with that money if you still have a balance to pay come January.

Student loan relief plans are still up in the air. It may be tough to predict what will happen with your finances until there’s a clear resolution. In the meantime, stay on top of news and do your best to prepare for different outcomes.

Lauren Schwahn writes for NerdWallet.

Image from: 123rf.com

Image ID: 138892450

Interest Rates on New Federal Student Loans Going Up for 2022-23

Two years ago, federal student loan borrowers enjoyed the lowest interest rates ever on their loans. This fall, rates for undergraduate borrowers will be nearly double what they were in 2020-21.

The interest rates for new undergraduate direct federal student loans are set to increase to 4.99% for the 2022-23 academic year, up from 3.73% last year and 2.75% in 2020-21. The interest rates on graduate direct loans are also set to increase to 6.54%; parent and grad PLUS loans will rise to 7.54%.

Since the new interest rates go into effect beginning July 1, any new loans taken out before then will carry the interest rates from the 2021-22 academic year.

2021-22 interest rates

2022-23 interest rates

Undergraduate direct loan



Graduate direct loan



PLUS loan



Rising rates make college more expensive

Higher interest rates mean paying off loans will be more costly. For a dependent first-year undergraduate student, a $5,500 loan — the maximum this student could borrow — will cost $6,997 over the standard 10-year repayment term with an interest rate of 4.99%. At the 2020-21 rate of 2.75%, this loan would cost $6,297.

Those taking on graduate direct and PLUS loans will see the cost of borrowing swell even more. On top of higher interest rates, PLUS loans carry an origination fee of 4.23% and don’t have any borrowing limits.

According to the Hechinger Report, a nonprofit focused on education issues, the average PLUS loan in 2019 was around $14,000. That loan amount, taken on with the standard 10-year term and next year’s interest rate of 7.54%, will cost $19,977 over the life of the loan, including $5,977 in interest.

Interest rates for federal student loans are set by the Treasury Department’s May auction of 10-year notes. The interest rate on the May 10-year notes, 2.94%, is added to margins set by Congress, and those margins differ between types of federal student loans.

For undergraduate direct loans, 2.05 percentage points are added to the interest rate; graduate student loans have 3.6 points added and 4.6 points for PLUS loans.

Submit the FAFSA and consider the payoff

Increases to the federal student loan interest rates make it even more important to consider the payoff of college and whether any debt you take on is worth it.

Nonetheless, even with increased interest rates, federal student loans are the best option to finance your education if you need loans. Submit the Free Application for Federal Student Aid, or FAFSA, to be eligible for federal, state and school-based aid.

Submitting the FAFSA also allows you to be considered for grants and other aid you don’t have to repay, such as the Pell Grant. Once you’ve taken advantage of any aid you don’t have to repay, exhaust all of the federal student loans offered to you before opting for private student loans. Federal student loans offer more borrower protections.

The payoff of attending college will vary based on your major, the cost of attendance and the amount of debt that you have to take on to finance your education. If the payoff isn’t clear for you, consider alternatives to college or starting at a community college before transferring to a four-year school to attain your bachelor’s degree.

Colin Beresford writes for NerdWallet. Email: cberesford@nerdwallet.com.

Image from: 123rf.com

Image ID: 167751855

College-Bound Grads May Share $40K in Debt With Their Parents

This year’s high school graduates could take on nearly $40,000 in student loan debt in pursuit of a bachelor’s degree, according to a NerdWallet analysis. And with this debt stretching across federal, parent and private loan sources, the final cost of their education will grow far beyond tuition and fees.

Today, it’s nearly impossible to work your way through college. Because of this, taking on debt for higher education in hopes of greater earning power is generally accepted as a worthwhile cost. But the data shows the amount of debt is increasing and spreading across multiple sources.

2022 college-bound grads could amass thousands in debt

A 2022 high school graduate could borrow as much as $39,500 in student loans by the time they complete their bachelor’s degree, according to NerdWallet’s projections. With 1.3 million high school graduates projected to enter a four-year college and 42% of college graduates taking on debt, this is a significant burden for young professionals entering the workforce.

The average cost of attending a four-year public university, including room and board, reached $22,700 this most recent school year, according to The College Board. Growth in these costs has (fortunately) slowed considerably over the past decade — climbing 12% from the fall semesters of 2012 to 2021 after rising 22% from the fall semesters of 2002 to 2011. But the burden of student loan debt is still significant.

During the repayment period, students who take out loans can expect to pay thousands of dollars in interest on top of the amount they borrow. Federal loans to dependent students pursuing an undergraduate degree are capped at $31,000 total. Students who max out this cap are looking at roughly $350 monthly payments and about $7,000 in interest during a standard 10-year repayment period on their federal loans alone.

And barring “free money,” such as scholarships or need-based grants, they’ll have to turn elsewhere to cover any remaining costs. Parents who haven’t been fortunate enough to amass a college fund are increasingly shouldering those costs as debt.

Parents increasingly picking up debt tab

The share of parents taking out federal parent PLUS loans to help cover the costs of their children’s college education has grown significantly. So has how much they’re borrowing. From 1996 to 2016, the most recent year for which this data is available, the share of dependent students relying on these federal parent loans at public four-year institutions grew from about 7% to 12%, according to the National Center for Education Statistics.

The amount they’re borrowing has also increased, more than doubling from $5,000 to $11,200 during that 20-year period.

Even parents in the lowest income brackets — where students are most likely to benefit from need-based aid — are taking on debt at an increasing rate. The share of dependent students in the lowest income quintile relying on parent PLUS loans rose from 3% in 1996 to 11% in 2016.

Parents may reason that they’re better equipped than their children to cover the added cost of borrowing, but some may think they have no choice. The Pell Grant, the largest source of need-based grant aid, has failed to keep up with the rising cost of education, or even with the pace of inflation, according to an earlier NerdWallet analysis.

The costs of these loans can be far more than the principal and interest — more than one-quarter (26%) of Americans with parent PLUS loan debt say the loans have affected their retirement plans, according to a July 2021 NerdWallet survey. And about 1 in 5 (21%) regret taking out the loan(s) in the first place.

Private student loans, also on the rise, lack protections

College students are also increasingly relying on private loans. In 1996, less than 1% of dependent students at public colleges and universities relied on private loans to cover education costs. Twenty years later, in 2016, nearly 9% did.

Private student loans can be tapped when federal student loan limits are reached and when parents can’t qualify for or don’t want to take out parent PLUS loans. But they’re missing some of the protections and benefits of federal loans.

For example, private loans generally come at a higher interest rate, lack income-based repayment options and are less forgiving when borrowers have trouble making monthly payments. In addition, private student loans weren’t included in the federal interest-free forbearance period recently extended through Aug. 31, 2022.

How families can manage costs of student loan debt

Students hoping to earn a college degree may develop a graduate-at-all-costs attitude, but being strategic and cautious about these costs could make their entry into the professional working world easier.

Maximize grant and scholarship eligibility

All students should fill out the Free Application for Federal Student Aid each year, and early. Not only does the FAFSA qualify you for federal grants and loans, but many states and institutions also use this data to determine additional potential aid. Also, keep an eye on scholarship opportunities beyond freshman year — make it an annual or biannual practice to search for scholarships and apply.

Explore work-study opportunities

Work study is a government-funded program that helps students with financial need find work, often on campus, to help pay for education expenses. Your FAFSA application will ask if you’re interested in the program, then gauge your eligibility.

Tap federal student loans

Before turning to private and even parent PLUS loans, use federal student loans. Above all, these have protections that aren’t provided by the other loan types.

Borrow only what’s needed

It can be tempting to accept all of the loans you’re allotted, but you would only be digging yourself into a deeper hole than necessary. When you receive your financial aid package from the school, only accept enough to cover your expenses.

Stick it out when the going gets tough

Repayment of student loans, no matter the type, is made easier with a higher income. And graduating with a degree makes that income more attainable. The most recent graduation rate among first-time undergraduates is 63%, according to the Department of Education, suggesting many students leave college with debt but without a degree.

If your goal is to graduate, talk to your advisor or student services department when you’re facing challenges or are at risk of dropping out. While getting a degree might not be the right decision for everyone, walking away should be done only after careful consideration of all of the implications.

Elizabeth Renter writes for NerdWallet. Email: elizabeth@nerdwallet.com. Twitter: @elizabethrenter.

Image from: 123rf.com

Image ID: 22665343

Student Loan Pause Extended Again — Is There an End Game?

Federal student loan borrowers just got an extra four months before their payments resume.

If that feels like déjà vu, it’s because this is the sixth extension of the interest-free payment pause that went into effect in March 2020 under the Trump administration, at the onset of the COVID-19 pandemic. Payments had been scheduled to restart beginning May 2.

This latest extension, through Aug. 31, will put the total number of months without payments at 30. Nearly 37 million of the nation’s federal student loan borrowers haven’t had to make payments during the pause, saving them a collective $195 billion in waived payments, according to a March report from the New York Federal Reserve.

They’ve used the wiggle room in their budgets to handle essentials like food, rent and child care. Some have managed to tackle larger financial goals, like paying down credit card debt or saving up for emergencies. Some even kept paying each month.

For months, Department of Education officials have expressed concern about whether the majority of borrowers could handle payments after more than two years without them, according to a recent Government Accountability Office report.

On Wednesday, the White House said borrowers still aren’t ready. And it offered up a huge win for 5 million borrowers with loans in default: an automatic return to good standing. Borrowers in default have long faced wage garnishment, damage to their credit and substantial collections fees. Debtors have had the option to pursue rehabilitation during the pause; now it’s automatic.

It’s unclear if borrowers will be more able to cope with payments come September. At the very least, the additional reprieve provides borrowers with more time to plan.

But plan for what, exactly?

Is there an end game?

Forgive student debtors for being doubtful: The government labeled last August’s extension as “final,” but that has been followed by several more.

Employment is back to near pre-pandemic levels, COVID-19 cases are dropping and other pandemic-related relief has expired. But the Biden administration, in a White House news release, said Federal Reserve data predicted a rise in late payments and defaults if payments resumed.

Some experts are skeptical.

“This feels much more driven by politics than by public health,” says Robert Kelchen, professor and head of the department of educational leadership and policy studies at the University of Tennessee at Knoxville.

Kelchen says he thinks an additional extension this year could be likely. He also raised the question of whether the Biden administration will ever resume payments. “They’re not going to resume at the end of August to make voters repay right before the midterms,” Kelchen says. “And then, at that point, the re-election campaign starts.”

Kelchen isn’t the only one who sees the move as largely political. Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says any extension will benefit borrowers, but four months might be more palatable to voters during the midterm election, whether they support or oppose extending the payment pause.

“If they had [extended] it through the end of the year, some people might take that as, ‘he only did it to get through midterms,’” Mayotte says.

Too much? Not enough?

Extending the payment restart raises the stakes for the Biden administration to make a decision on debt cancellation, says Mike Pierce, executive director of the Student Borrower Protection Center advocacy group. “I think this is the clearest sign yet that big things are coming,” he adds.

The extension “does not make sense if you decouple it from the broader conversation around student debt cancellation and student loan reform,” says Pierce, adding that the timing of the extension’s expiration does tee up the possibility of debt cancellation weeks before voters head for the polls.

The Biden administration has repeatedly said the president would support cancellation via congressional action despite calls from Democrats in Congress, along with student borrower advocates, state attorneys general and one former Secretary of Education, to do so via executive action. Biden has questioned his unilateral ability to do so.

The amount of cancellation, if any, has also been a tug-of-war. While on the campaign trail, Biden pledged to sign off on canceling $10,000 in debt per borrower, a promise he has distanced himself from since becoming president. Some Democratic lawmakers like Sens. Chuck Schumer of New York and Elizabeth Warren of Massachusetts have called for Biden to cancel $50,000 in debt.

While broad student debt cancellation has not come to pass, more than 700,000 borrowers have seen $17 billion in loan debt forgiven via a revamped Public Service Loan Forgiveness program and other existing forgiveness programs.

Is it time to get back to normal?

Republican lawmakers, meanwhile, have criticized both the extension and their Democratic colleagues’ calls to cancel student debt. Rep. Virginia Foxx of North Carolina, who sits on the House Education Committee, called the pause extension “outrageous,” while two others, Reps. Jim Banks of Indiana and Bob Good of Virginia, had previously introduced a bill to block another extension.

Leaders in the private student lending industry are also against extending the pause since their business has taken a two-year hit from federal borrowers who chose to stick with the pause rather than refinance privately. SoFi CEO Anthony Noto wrote in a March 17 blog post that extending the pause was “at best fiscally irresponsible” and “takes from struggling families and gives to the affluent, and at worst it’s political theater.”

Student loan servicers are unlikely to be more ready to resume processing payments or offering guidance to borrowers in September than May, says Scott Buchanan, executive director of the Student Loan Servicing Alliance, which represents servicers. These private companies are contracted by the government to manage federal student loans.

Buchanan adds, “In fact, we may be less ready just because you’ve burned through a bunch of resources to get ready and now all of those are wasted.”

Who needs a plan? Borrowers

Buchanan says he’s concerned that a further delay means borrowers won’t take the restart seriously. “They’ll ignore it until they get a delinquency notice,” he says. “The more we push this out and do it at the last minute, the worse our problems become.”

What leaders from both sides of the aisle, the private lending industry and student borrower advocacy groups all seem to agree on is that the pause doesn’t fix the core issue: The student lending system is broken. And, as Pierce says, a four-month extension isn’t much time to implement meaningful reform.

Four months does give borrowers more time to, at a minimum, make a plan for payment to restart. Whenever that is.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

Image from: 123rf.com

Image ID: 143687352

How the Student Loan Pause Has Played Out for Borrowers

Two years after the chaos of the pandemic prompted Congress to pause federal student loan payments, new data show many borrowers have used that extra room in the budget to shore up their overall finances. Some have inched closer to eligibility for student loan forgiveness.

Economists and lending experts say it’s unclear how long that stability will last when the payment pause ends, currently scheduled for May 1. Among the 26.6 million people expected to enter repayment at once, some will inevitably struggle, including unemployed borrowers and those whose wages have not kept up with rising inflation.

Evan White, executive director of the California Policy Lab at the University of California, Berkeley, says to expect an increase in delinquencies and eventually defaults when student loan repayment resumes. That echoes recent projections from a March 2022 New York Federal Reserve report and a January 2022 report from the Government Accountability Office.

Pandemic-related supports like stimulus checks and the payment pause could have been propping people up in a way that makes them look like they’re doing much better than they are, White says. “Or it may be that all of those supports build people up to a better place in a way that will have some sustainability.”

All borrowers can make a plan to manage upcoming payments by reaching out to their servicers, the companies contracted to manage federal loans. If you are at all uncertain of your ability to resume payment, an income-driven repayment plan is your best option.

Here’s how the federal student loan payment pause has affected borrowers.

Overall finances improved

A lot can happen to your finances in two years, but the pause was objectively good for federal direct student loan borrowers in several ways:

  • Borrowers, on average, experienced $210 of monthly breathing room. Since the start of the payment pause, 37 million borrowers have collectively saved an estimated $195 billion in waived payments, according to the March report from the New York Federal Reserve. Each month, borrowers saved around $210 on average, according to California Policy Lab.
  • Balances didn’t grow. No interest accrued during the pause, which means borrowers’ balances did not increase.
  • Borrowers reduced other debt. About 44% of borrowers reduced the amount of debt on their credit cards and 6% of borrowers increased payments on other loans, like an auto or mortgage loan, California Policy Lab found. White says, however, that it’s more difficult to draw a direct line to the pause being the cause of these changes.
  • Credit scores increased. “The people that saw the biggest boost to their credit are not the doctors and lawyers, it is the people who are struggling that are now the beneficiaries of this extraordinary public policy,” says Mike Pierce, executive director of the Student Borrower Protection Center, a nonprofit advocacy group. Borrowers across the board saw credit score increases, with the most gains among those with the lowest scores and those with a recent delinquency, according to California Policy Lab.

Some borrowers are closer to forgiveness

Every month of the pause could count toward the total borrowers need to become eligible for loan discharge through existing programs.

For public service workers, each nonpayment month has counted toward the 120 payments needed for forgiveness through the Public Service Loan Forgiveness program. To qualify, borrowers had to be working full time for a public service employer during the pause.

Borrowers on income-driven repayment plans — aimed at keeping monthly payments manageable — also can count each nonpayment month toward the 240 or 300 months needed for loan discharge.

A borrower enrolled in these forgiveness programs since the pause began in March 2020 has been credited with at least 24 payments toward their goal. The same is not true for borrowers in more traditional repayment plans.

Borrowers who kept repaying took advantage of 0% rates

Zero percent interest meant borrowers who could afford to make payments could potentially lower their debt faster, but they had to do so by voluntarily contacting their servicers. The New York Federal Reserve report says over 18% of borrowers with direct loans continued making payments.

Among those who made payments were borrowers with a history of actively paying down their balances before the pandemic, as opposed to those whose balances were increasing due to accruing interest.

A fraction of borrowers in default grabbed opportunity

The payment pause offered defaulted student loan borrowers a rare opportunity to get their loans back in good standing — removing the default from credit reports — without having to make a single payment to do so.

Student loan rehabilitation stipulates borrowers must make nine payments at an agreed-upon amount out of 10 possible months. Months spent in forbearance count.

Data from the Education Department show some borrowers did take advantage of that: A total of 602,000 borrowers rehabilitated their loans in 2020 and 2021. But this is likely a drop in the bucket. Department data show that at the end of the first quarter of 2020, 5.7 million borrowers were in default; by the end of 2021, it was 5.1 million.

Even more disheartening, 25% of borrowers in default do not have an email on record with the Education Department, the Government Accountability Office report found. It remains unclear how those borrowers would be reached before collections resume six months after the pause lifts.

Borrowers with private loans missed out

Not all student loan borrowers saw their finances improve as a result of the pause, including private loan borrowers and Family Federal Education Loan program borrowers with commercially held loans.

Most FFEL borrowers whose loans are privately held were not placed in any forbearance and struggled with payments, according to the March New York Federal Reserve report. Some FFEL borrowers whose loans were placed in forbearance saw delinquency rates increase after the end of those periods. And FFEL borrowers also experienced 33% higher delinquency on other non-loan-related debts after forbearance ended.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says most FFEL borrowers didn’t realize the payment pause didn’t apply to them until delinquencies hit their credit report. “I still, today, get people saying, ‘Why am I getting a bill?’” Mayotte says.

Private loan borrowers did not see their loans paused, but they also didn’t experience significant delinquency increases since the start of the pandemic, according to data from Measure One, a data and analytics firm.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

Image from: 123rf.com

Image ID: 84315923

Student Loan Pause is Extended, With Payments Resuming May 2

The Biden administration just hit the snooze button again on the restart of student loan payments.

Now, millions of federal student loan borrowers have 90 extra days to figure out how to pay a bill they’ve gone nearly two years without.

“We are really relieved that the president changed course and that student loan borrowers don’t have to spend the holidays worried about how to make ends meet because of an unforced decision to send them student loan bills,” says Mike Pierce, executive director and co-founder of the Student Borrower Protection Center, a nonprofit advocacy organization.

Payments were supposed to restart beginning Feb. 1.

The interest-free pause has been in effect since March 13, 2020, the onset of the COVID-19 pandemic. It allowed federal student loan borrowers with an amassed $1.61 trillion in debt to prioritize other financial needs like paying rent or padding emergency savings.

Payments now restart beginning May 2. Borrowers should use the additional time to ensure they have a plan to resume payments or arrange a payment plan they can afford.

What led to the extension?

The pause has been extended four times. If payments restart in May, borrowers will have had a total of 25 payment-free months.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a nonprofit student loan help organization, welcomed news of another extension but worries about the potential to create a “cry wolf” phenomenon.

“[It] makes me worry a bit about when the repayment does start: Will folks be less likely to be prepared?” says Mayotte.

Notably, the Dec. 22 announcement from the Department of Education did not use the word “final” with this extension, as it did in August.

In the past few weeks, a long-standing campaign to deal with student debt won new urgency as the omicron coronavirus variant emerged and inflation surged. Survey after survey found many borrowers worried about their ability to pay.

“I think the pressure from advocates, borrowers, lawmakers and bipartisan voters was too overwhelming to ignore; I think that speaks to the severity of the crisis,” says Braxton Brewington, press secretary for the Debt Collective.

The added time offers borrowers another chance to make a plan for their loans. Barring further extension or en masse forgiveness, borrowers have the following options available.

Step 1: Call your servicer

Notifications about the restart had been hitting borrowers’ inboxes for weeks before the announcement.

Student loan servicers, the private companies that manage student loans, were in the midst of hiring and training staff in preparation, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance.

The newest extension surprised servicers, Buchanan said, but they still face a big challenge even with the extra time: Getting their customer service workers up to date on a complicated student loan repayment system and providing accurate help to millions of people.

Borrowers can beat the rush. You’re likely to face high call volumes and long wait times with servicers closer to the start date.

Before payments restart, find out who your servicer is. Log in to the federal student aid site, contact your servicer about your options and compare any information you receive to the federal student aid site.

Your servicer can help you with any of the options below.

If you need a lower payment

If you expect to have trouble making payments due to your income, consider an income-driven repayment plan. These plans cap your payment at a portion of your income and extend your repayment term; at the end of that period your debt is forgiven. If you have zero income, your monthly payment amount will also be zero.

Temporarily, through July 31, you can self-certify your income, which means you won’t have to file the income-driven repayment plan paperwork usually needed to confirm your income until you recertify. Those already enrolled prior to the pause will need to recertify beginning in August 2022. But if your income is lower now than it was before the pause, recertify as soon as possible. It’s unclear if the pause will extend these temporary provisions.

If you want to keep paying

You can continue paying down your student loans, but you’ll have to contact your servicer to submit payment.

Mayotte says the extension will especially benefit those who take advantage of the 0% interest rate to pay down their loans or other debt.

If you expect you’ll need an additional break

You can apply for an additional pause if you need it: an unemployment deferment for up to 36 months or a hardship forbearance for up to 12 months at a time. But unlike the current pause, interest will accrue and be added to the total you owe when you do start paying again.

If your loans are in default

If your loans were in default prior to the payment pause, getting back into good standing immediately will require you to pay your entire student loan amount, in full, which is unrealistic for most borrowers.

A more practical plan is student loan rehabilitation, which requires making nine consecutive monthly loan payments in 10 months equaling 15% of your discretionary income, then entering into an income-driven repayment plan. If you start loan rehabilitation now, which you can do during the pause, you’ll be that much closer to being back in good standing.

If you think you might miss future payments

When you miss enough payments — 270 days — your loan goes into default, resulting in negative effects including collection activities and damaged credit.

To avoid this outcome, enroll in a repayment plan that’s affordable for you, and sign up for autopay so you never miss a payment. If you were enrolled in autopay prior to the payment pause, you must reaffirm you would like to reenter into autopay. As a bonus, autopay will save you 0.25 of a percentage point on your interest.

If you’re waiting on loan forgiveness

Student debt advocates like Pierce and Brewington say they welcome the pause but are hoping widespread forgiveness is on the way.

“This is a major win, but there’s so much to go from here,” says Brewington. “We need full cancellation. Our economy, families and communities need full cancellation.”

Biden has not committed to broadly forgiving student debt via executive order; he indicates he would sign any legislation that passes through Congress. Right now, there’s nothing imminent.

Targeted debt relief worth $13 billion via existing forgiveness programs has reached more than 640,000 borrowers, the White House says.

For those seeking Public Service Loan Forgiveness, the additional three months of nonpayment will count toward the 120 needed for forgiveness so long as you’re still working full time for an eligible employer.

Anna Helhoski writes for NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

Image from: 123rf.com

Image ID: 39172545

Don’t Skip These Steps When Borrowing Parent Student Loans

In more than one-third of U.S. families, parents decide how to pay for college, according to a July 2020 report from private lender Sallie Mae.

Half of those parents don’t inform the child of their decision.

Joe Allen, 51, of Frederick, Maryland, did talk about college costs with his daughter, a freshman at the University of Dayton in Ohio. But he understands why some families avoid the topic.

“As a parent, you want to protect your children,” Allen says. “You want to do what’s best for them.”

But what seems best for children may be bad for mom or dad — especially if it means taking out hefty parent student loans without discussing them. Here’s how to avoid that misstep and others when borrowing parent loans.

Assess your situation

Students should exhaust free money and federal loans in their names to pay for college. Parents can then cover the remaining costs with federal parent PLUS loans or private loans.

But first, review your current financial situation with your child.

“Have a realistic sit-down with yourself and your family in terms of what (your) finances look like and what’s the best decision for you,” says Rick Castellano, spokesperson for Sallie Mae.

Don’t borrow parent student loans if they’ll put your retirement at risk, you’re deep in debt or you can’t afford the payments. For example, the nonprofit Trellis Company surveyed more than 59,000 parents whose children attended school in Texas and found that most said they struggled with loan repayment at some point.

Have a conversation

Kathleen Burns Kingsbury, a wealth psychology expert and host of the Breaking Money Silence podcast, says talking about big expenses like college tuition can make people uncomfortable and emotional.

That doesn’t mean you should avoid the conversation.

“It’s OK if people get upset,” Kingsbury says. “The pitfall is if people get upset and don’t get back to it.”

Instead, use this opportunity to talk about how much you’ll borrow and to teach your child how to analyze the value of a large purchase.

Allen says he went through a sample budget with his daughter to illustrate the cost of her loans and how they might limit her flexibility in the future.

He liked that the exercise made things more concrete than “just saying don’t take out debt.”

Figure out who’s responsible

A conversation is also necessary to determine who’ll repay the parent’s loans.

If your child will — and 45% of families expect the parent and child to at least share this responsibility, according to the Sallie Mae report — that can affect your decisions.

Angela Colatriano, chief marketing officer for College Ave Student Loans, says some families want the child’s name on the loan because he or she will repay it.

“They don’t want a handshake agreement,” she says.

But only the parent is legally responsible for a parent PLUS loan. You’ll need to weigh that when considering borrowing options.

PLUS loans have less stringent credit requirements than private loans and offer everyone the same fixed interest rate. However, PLUS loans also have large origination fees and are available only to parents — guardians and grandparents aren’t eligible, for example.

Your ultimate goal should be getting the least expensive loan you qualify for. If that’s a PLUS loan, make sure everyone is on the same page for repayment.

Kingsbury suggests writing a simple, one-page agreement that “would spell out what the expectation is and what happens if there’s a conflict.”

Consider co-signing

Parents who prefer private loans can borrow in their name or co-sign with their child. Either option means you’ll be responsible for the loan.

“It comes down to a family decision,” Castellano says. “Families should explore both options.”

But he says that co-signing can benefit students in ways that borrowing on your own can’t, such as helping them build credit.

Also, because a co-signed loan has two applicants, you may get a better interest rate. However, lender underwriting policies differ.

For example, Allen initially got a much higher rate on a co-signed loan than he expected. The lender told him that was because it combined his credit score with his daughter’s.

“I didn’t understand that,” Allen says. “I thought if I’m co-signing and bringing good credit to the equation it should be a better rate.”

He applied with a different lender and got what he called a “much better” rate. Allen plans to take out that loan once his family can no longer fund the education on their own.

This article was written by NerdWallet and was originally published by The Associated Press.

Ryan Lane is a writer at NerdWallet. Email: rlane@nerdwallet.com.

The article Don’t Skip These Steps When Borrowing Parent Student Loans originally appeared on NerdWallet.

Image from: 123rf.com

Image ID: 129190705

6 Things to Know About Student Loans Before You Start School

The summer before your freshman year in college means choosing classes, checking out your future roommate’s Instagram and figuring out how you’re going to pay the bills.

Chances are you will need a loan: 2 out of 3 students have debt when they leave school, according to 2017 graduate data from the Institute for College Access and Success. But consider a loan after you’ve accepted grants, scholarships and work-study. You can get these by submitting the Free Application for Federal Student Aid, or FAFSA.

Here are six things you need to know about getting your first student loan.

1. Opt for federal loans before private ones

There are two main loan types: federal and private. Get federal loans first by completing the FAFSA. They’re preferable because you don’t need credit history to qualify, and federal loans have income-driven repayment plans and forgiveness that private loans don’t.

You may be offered two types of federal loans: unsubsidized and subsidized. Subsidized loans — for students with financial need — don’t build interest while you’re in school. Unsubsidized loans do.

Take a private loan only after maxing out federal aid.

2. Borrow only what you need — and can reasonably repay

Undergraduate students can borrow up to $12,500 annually and $57,500 total in federal student loans. Private loan borrowers are limited to the cost of attendance — tuition, fees, room, board, books, transportation and personal expenses — minus financial aid that you don’t have to pay back.

Aim to borrow an amount that will keep your payments at around 10% of your projected after-tax monthly income. If you expect to earn an annual salary of $50,000, your student loan payments shouldn’t be over $279 a month, which means you can borrow about $26,000 at current rates.

To find future earnings, look up average salaries in the U.S. Department of Labor’s Occupation Outlook Handbook. Then, use a student loan affordability calculator to estimate payments.

Your school should provide instruction on accepting and rejecting financial aid in your award letter. If you’re not sure how to do it, contact your financial aid office.

“We’re not scary people,” says Jill Rayner, director of financial aid at the University of North Georgia in Dahlonega, Georgia. “We really do want students and families to come in and talk with us so we can help strategize with them.”

3. You’ll pay fees and interest on the loan

You’re going to owe more than the amount you borrowed due to loan fees and interest.

Federal loans all require that you pay a loan fee, or a percentage of the total loan amount. The current loan fee for direct student loans for undergraduates is 1.062%.

You’ll also pay interest that accrues daily on your loan and will be added to the total amount you owe when repayment begins. Federal undergraduate loans currently have a 5.05% fixed rate, but it changes each year. Private lenders will use your or your co-signer’s credit history to determine your rate.

4. After you agree to the loan, your school will handle the rest

Your loan will be paid out to the school after you sign a master promissory note agreeing to repay.

“All the money is going to be sent through and processed through the financial aid office — whether it’s a federal loan or a private loan — and applied to the student’s account,” says Joseph Cooper, director of the Student Financial Services Center at Michigan Technical University in Houghton, Michigan. Then, students are refunded leftover money to use for other expenses.

5. You can use loan money only for certain things

Loan money can be used for education-related expenses only.

“You cannot use it to buy a car,” says Robert Muhammad, director of the office of scholarships and financial aid at Winston-Salem State University in North Carolina. “It’s specifically for educational purposes: books, clothing, anything that is specifically tied to the pursuit of their education.”

You can’t use your loan for entertainment, takeout or vacations, but you should use it for transportation, groceries, study abroad costs, personal supplies or off-campus housing.

6. Find out who your servicer is and when payments begin

If you take federal loans, your debt will be turned over to a student loan servicer contracted by the federal government to manage loan payments. If you have private loans, your lender may be your servicer or it may similarly transfer you to another company.

Find your servicer while you’re still in school and ask any questions before your first bill arrives, says John Falleroni, senior associate director of financial aid at Duquesne University in Pittsburgh. They’re also whom you’ll talk to if you have trouble making payments in the future.

When you leave school, you have a six-month grace period before the first bill arrives.

Anna Helhoski is a writer at NerdWallet. Email: anna@nerdwallet.com. Twitter: @AnnaHelhoski.

The article 6 Things to Know About Student Loans Before You Start School originally appeared on NerdWallet.

Image from: 123rf.com

Image ID:7262198