Student loan borrowers need a plan to pay off their debt after a 9-month hiatus


September is traditionally back-to-school month, and even in a time of COVID-19 restrictions, September was supposed to be the month when student loan repayments resumed.

Well, like a lot of things, we’re still looking at a new game plan here. And it’s one that savvy consumers could use to their advantage.

Borrowers across the country began receiving notices in April from their federal student loan officers of temporary 0% rates and a pause in payments. No payments were due, which theoretically offered some relief from tight budgets as wages were cut and jobs lost during the fight against the coronavirus pandemic.

But that deal was scheduled to end on September 30, and borrowers are expected to start repaying those federal student loans soon.

As the health crisis continues to loom, borrowers are now considering an automatic three-month extension as the federal student loan forbearance program is set to run until December 31.

Loan managers should advise borrowers of the extension until the fall. And, according to the US Department of Education, borrowers can expect to see this extension reflected in their accounts over the next few weeks.

After:Student loan debt relief comes amid coronavirus – but not for all

After:The odds might be in your favor in applying for additional financial assistance – but don’t wait

Who continued to pay student debt in 2020?

The first relief round came into play when a majority of student loan borrowers were given more leeway under the Coronavirus Aid, Relief and Economic Security Act, or CARES Act, signed by President Donald Trump on the 27th. March.

The new extension until December 31 came into effect after the White House issued an order on August 8 and the Education Ministry followed up on August 21 to implement the memorandum.

Not everyone is covered. About 9 million borrowers – those with private student loans, Perkins loans, and federal non-federal family education loans – have been left behind, according to the Student Borrower Protection Center, a group nonprofit defense.

Some efforts continue to try to cover more borrowers with student loans. A coalition of attorneys general, including Michigan Attorney General Dana Nessel urged the US Senate to provide relief to all federal student loan borrowers, including borrowers whose federal student loans are owned by private entities.

While the federal government backs or guarantees these loans against default, Nessel’s office noted that “these borrowers are grappling with the pandemic just like other federal student loan borrowers, but have no options. relief under the CARES Act only because of the entity that owns their loan. ”

What should you do with the extra money in 2020?

If you qualify for relief now, take a look at your budget and financial situation to develop a plan that can help you later.

A person who continues to bring home a salary, for example, could redirect the money that would have been used to pay off a student loan.

If you have high cost credit card debt, for example, you can use that money to pay off your old credit card bills until the end of the year.

If you want to continue paying off student loans to pay off that debt faster, you can continue to pay off your student loan debt this year.

“All borrowers with federally owned student loans will have their payments automatically suspended until 2021 without penalty “, according to the Ministry of Education.

“Borrowers will continue to be able to make payments if they wish. This will allow borrowers to repay their loans faster and at lower cost.”

Or if your emergency savings are very limited, replenish the cash you have on hand in an emergency, like the day you might need new tires or have trouble paying the mortgage.

“Save at least half a year of salary in an emergency fund,” said Mark Kantrowitz, editor and vice president of research for

“You might have a job now, but who knows what will happen in a month or two, especially if there is a second wave of the pandemic.”

Kantrowitz noted that the average duration of unemployment during the 2008 economic downturn was five months. Depending on your skills and experience, the search for another job can take as long, if not longer, during the last recession.

Take the time to prepare now so that you can make your payments in 2021. Know how much you will owe each month starting in January and put some money aside for that bill.

If your federal student loan payments were to be automatically deducted from a bank account previously, Kantrowitz said, you may need to re-enroll before student loan payments are due next year. “This will likely be necessary because the lender doesn’t know if you still have the same bank account,” Kantrowitz said.

Will suspended payments be considered eligible payments in forgiveness programs?

Fortunately, the answer is yes, according to Will Sealy, co-founder and CEO of Summer, a New York-based startup that offers software to help borrowers track their student loans.

The Education Department confirmed that the three-month extension from Oct. 1 to Dec. 31 will count towards programs such as income-based repayment and forgiveness of civil service loans. But Sealy warned that the borrower must already meet the other program requirements for it to work.

What if I faced financial difficulties in 2021?

If you are having financial problems next year, it is a good idea to contact the loan officer to inquire about financial relief options.

Payment options exist for federal loans, including federal family education loans that were not eligible for the payment break and interest relief. You may be able to withhold payments by exploiting postponement of economic hardship, postponement of unemployment, and abstentions. But such breaks will not be automatic.

“If you were already on an income-based repayment plan and your income has changed,” Kantrowitz said, “you can ask the loan manager to recertify your income now instead of waiting for the annual recertification date. ”

If you are having difficulty making payments on private student loans, you can contact the lender. Many private student loan lenders offer 90-day COVID-19 forbearance upon request.

If a borrower still has difficulty paying bills, Kantrowitz said, contact the lender or the loan manager to inquire about the options. Many extend COVID-19 forbearance on a case-by-case basis until the borrower’s financial situation improves.

As part of the extension, distressed borrowers should realize that debt collection on delinquent loans held by the federal government will also continue to be halted. If a borrower’s employer continues to garnish wages for such loans, the borrower will receive reimbursement from these garnishments.

While there may be more resistance to extending relief, experts say the Dec.31 extension is likely.

Some haggling could be coming up with some questioning the Education Department’s legal authority to simply extend the interest relief, Kantrowitz said, but student loan borrowers are still likely to benefit.

“No one will oppose it, because such an extension enjoys bipartisan support,” Kantrowitz said.

“It seems likely that it will be codified into law when the next stimulus is passed by Congress.”

ContactSusan tompo vthat is to say [email protected]. Follow her on Twitter@tompeur. To subscribe, go to Rfind out more about business and subscribe to our company newsletter.

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