President Joe Biden did not mention the student debt crisis during his first State of the Union address, even as monthly loan payments are set to restart in May. However, the president is still considering how he can provide student loan relief before the forbearance expires, according to White House chief of staff Ron Klain.
“I think the president is going to look at what we should do on student debt before the break expires, or he’ll extend the break,” Klain said during an episode of “Pod Save America” that aired on Tuesday. 3rd of March.
Klain’s comments give the Biden administration less than two months to offer some form of student debt relief. The Department of Education has extended the forbearance period three times since Biden took office, and federal student loan payments have been suspended since COVID-19 began in March 2020.
“Whether or not there is executive action to cancel student debt when payments resume is a decision we will make before payments resume,” Klain said.
This admission may raise hope among the millions of Americans with student loans, but it is not a concrete promise of debt cancellation. Progressive Democrats have been urging the president for months to write off student loans via executive action, but it remains unclear whether Biden has the legal authority to write off student loan debt. This means that borrowers should anticipate that repayment will start as scheduled.
Keep reading to learn how to prepare your finances for the end of federal student loan forbearance, including income-contingent repayment, federal deferment, and student loan refinancing. You can visit Credible to compare student loan refinance interest rates for free without affecting your credit score.
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3 ways to prepare for student loan repayment
The vast majority (93%) of student borrowers are not financially ready to resume their monthly payments in May, according to a recent survey by the Student Debt Crisis Center (SDCC). Additionally, Education Ministry officials said it would be a “significant challenge” for borrowers to avoid delinquency after two years of forbearance.
If you’re not ready to pay off your federal student loan in less than two months, consider these strategies for managing your debt:
- Sign up for income-oriented reimbursement
- Request a Federal Deferral
- Refinance your student loans
Learn more about each student debt repayment method in the sections below.
1. Sign up for income-oriented reimbursement
Federal student loan borrowers may be eligible to reduce their monthly payments between 10% and 20% of their disposable income by enrolling in Income-Based Repayment (IDR). Federal Student Aid offers four types of IDR plans:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Reimbursement Plan (PAYE Plan)
- Income Based Reimbursement Plan (IBR Plan)
- Income Contingent Repayment Plan (ICR Plan)
The amount of your student loan will depend on your income as well as the size of your family. Under each of these repayment plans, your loan balance will be canceled after the period expires, either 20 or 25 years.
If you signed up for IDR and still can’t pay your monthly payments, you might consider refinancing a private student loan. A recent analysis by Credible found that borrowers who refinanced on a longer-term student loan were able to reduce their monthly payments by more than $250.
Keep in mind that refinancing your federal loans will make you ineligible for IDR plans, administrative forbearance, federal deferment, and some student loan forgiveness programs. You can learn more about student loan refinancing by visiting Credible.
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2. Request a Federal Deferral
It may be possible to defer your federal student loan payments for up to 36 months if you meet certain conditions. There are several types of student loan deferment based on eligibility criteria, such as unemployment or economic hardship. You can read more about your options on the FSA website.
Although deferral may temporarily suspend your monthly payments, interest may accrue on your loans during this time. This can increase the overall cost of borrowing, making your student loans more expensive to repay over time.
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3. Refinance your student loans
If you’re struggling to repay your student loan, it may be possible to reduce your monthly payments by refinancing a private student loan. Refinancing at a lower rate can also help you pay off student debt faster and save money over the life of the loan.
It’s important to remember that refinancing your federal student loan debt into a private loan would make you ineligible for certain programs, such as the Public Service Loan Forgiveness (PSLF). But if you don’t plan to apply for loan discharge or already have private student loans that aren’t eligible for student debt forgiveness, you may be able to save money by refinancing.
You can browse the current student loan refinance rates in the table below. Then, use Credible’s student loan refinance calculator to estimate your potential savings and decide if this debt repayment strategy is right for your financial situation.
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