Stop waiting for a student loan forgiveness miracle and start preparing to resume or restructure your student loan payments by February 1, 2022. The Department of Education’s student loan repayment pause began in March 2020 and ends January 31, 2022. In the meantime, no interest has accrued on federal student loans and no payments have been required. Few private lenders offered forbearance on student loans.
The possibility of a full or even partial student loan forgiveness program was raised during the election campaign. But like many other policy musings, it has fallen by the wayside as the Biden administration and Congress wrangle over the debt ceiling, federal budget and social infrastructure spending.
It’s not like the Biden administration has done nothing to deal with this $1.8 trillion student loan albatross that affects 43 million borrowers. There have been several rounds of loan cancellations (in March, July and August 2021) for loans given to students from bankrupt or fraudulent institutions (such as Corinthian Colleges, which closed in 2015). And there has been more than $5 billion in loan forgiveness for borrowers on permanent and total disability.
In addition, the current administration is taking steps to make more borrowers who work for nonprofit organizations eligible for the Civil Service Loan Forgiveness, which cancels the remaining balance on their direct loans after making 120 eligible monthly payments while working full-time for an eligible employer. In more than a decade of this program under previous administrations, less than 5,000 loans had been forgiven. This is changing and you can learn more about this PSLF program on StudentAid.gov.
That still leaves millions of borrowers with the task of dealing with older student loans, some of which carry rates as high as 8%. (Federal borrowers have a unique opportunity to consolidate loans at lower rates, but private lenders rarely negotiate a rate cut.) rate the government pays to borrow on 10-year Treasury IOUs — currently at around 1.5% – and be readjusted every year.
So count me among those who know that the burden of student loans helps destroy our society, preventing young people from starting families and buying homes. On the other hand, blanket forgiveness does a disservice to those who have already paid off their loans over the years.
Arrange to resume repayment
Now is the time to get organized to restart these monthly payments. Here are some tips to get a head start:
— Contact your loan manager. They will send emails and letters advising you to set up a repayment plan. But you may have moved in the meantime, or these emails may be mistaken for spam. It’s your job to update your information at each loan service.
— Make a plan to start repayments. This may mean setting up an automatic payment with your checking account or resuming those suspended payments.
— Apply for an income-based repayment plan. If you’ve lost your job or your income has dropped, you can set up a plan that requires low monthly payments (although in the long run you’ll pay more interest). It’s better than a default on your credit report.
And here’s a tip. While the payment pause is still in effect, all payments you make in December or January will be credited to your principal (unless you had accrued interest before). So if you can send money now, it will reduce the balance you will pay interest on in the future! Every little gesture counts.
Don’t procrastinate. The end of the federal student loan payment suspension issue will make headlines in late January, and servicers will be overworked. Now is the time to act, before the end of the year. For more information, go to Studentaid.gov. There you can securely log in to your account to find your current federal student loans. For each loan, you’ll see the phone numbers of your loan managers so you can update your contact information and develop a plan to resume payments.
The worst thing you can do is ignore this payment restart. It is far better to make a plan to reduce payments than to ruin your credit. And that’s the wild truth.
Terry Savage’s recent column gave incorrect age information for mandatory withdrawals from tax-sheltered retirement accounts. The column should have said the age is 72.
(Terry Savage is a registered investment advisor and the author of four bestselling books, including “The Savage Truth on Money.” Terry answers questions on her blog at TerrySavage.com.)