After numerous extensions to the federal student loan payment and interest freeze, the scheduled end of December 31st, 2022, feels final.
However, there is still some hope for borrowers. When the Biden Administration previously announced a “final” extension, they changed their minds. Unfortunately, most signs point to federal student loan repayment starting on January 1st, 2023.
The Strategy before the Restart
Borrowers looking to get the most out of the final days of student loan relief should consider the following:
Ask for a Refund on Previous Payments
Federal student loan payments made during the 0% interest and payment freeze can be refunded.
I recently heard from one borrower who ran into a medical issue and received a refund of thousands of dollars.
The refund process is simple, and it is an excellent opportunity for borrowers to build up their emergency funds. Those that wish to attack their student debt can always make a large payment at the end of January.
The benefit of getting the refund is flexibility and whatever interest your savings account earns.
Many borrowers are making extra payments to maximize the 0% interest.
I think the ideal approach is to hold on to this cash until the restart. There isn’t any benefit to paying now versus paying later. At the very least, you can put that money in a high-yield savings account and earn some interest.
The one exception would be borrowers who might be tempted to use the cash for something unnecessary. If you see the money sitting in a savings account and it is burning a hole in your pocket, sending it to your lender to avoid temptation is a reasonable choice.
Get Ready Before 2023
The repayment restart will be ugly. Loan servicers expect to receive more calls in a month than they typically receive in a year.
Borrowers that get questions answered ahead of time will avoid headaches.
Before payments resume, it is a good idea to know your repayment plan, how much you will be paying per month, and how you will make payments. If you are working towards forgiveness, take steps to track your progress before servicers get slammed.
What the Extensions Mean for Borrowers Chasing Forgiveness
Borrowers chasing student loan forgiveness are some of the biggest beneficiaries of the student loan payment freeze.
These borrowers haven’t been required to make payments for over two years, but the time still counts towards the various loan forgiveness programs, including PSLF.
These borrowers will want to make sure that they are ready to resume making payments right away. If you want to avoid any issues, calling your servicer before the restart is a good idea. Verify that you are enrolled in the repayment plan you want and that payments have been correctly calculated. Resolving these issues before the restart will help prevent delays and missed months.
The Odds of Another Extension?
The federal student loan interest and payment pause has survived much longer than the other federal relief programs from Covid-19.
However, the likelihood of another extension is very low.
Consider the reasoning behind the last extension: the Biden administration was figuring out student loan forgiveness. Now that forgiveness has been announced, there isn’t anything else to figure out.
Additionally, the freeze moves the repayment restart to the other side of the midterm elections. If student loan repayment resumed in September, voters might have been angry when they went to the ballot box. This factor made predicting the most recent extension pretty easy. It also means that an additional extension is unlikely.
At this point, borrowers need to start getting serious about the repayment restart in January 2023. If you are an IDR borrower, there is plenty to consider as you get ready.