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Millions of student loan borrowers who haven't had to make a payment since the pandemic shut down the nation last winter just got an additional reprieve, this time from President-elect Joe Biden.
The payment pause, known as a forbearance, began March 13 as part of the original coronavirus relief package and has been extended twice by the Trump administration, most recently through Jan. 31. President-elect BIden has now indicated he will extend the forbearance immediately after his Jan. 20 inauguration.
The pause has provided around 33 million borrowers with an interest-free respite from payments, preventing delinquency and subsequent default among those struggling to meet payments as the economy buckled.
Biden could act as early as Jan. 20, Inauguration Day, but his transition team has not offered specifics as to how long the forbearance might last. They have also indicated support for expedited loan forgiveness of $10,000 for all student borrowers, but student loan policy experts say not to bank on that happening quickly, if at all.
What can borrowers expect in 2021?
With the economy in flux, the end of forbearance will be a moving target. But expect payments to resume once the economy appears to be on the mend.
“The situation lends itself to confusion. I’m not sure how to get out of that,” says Scott Buchanan, executive director of Student Loan Servicing Alliance. “We try to be careful about our communication.”
When your payments restart, Buchanan says:
Expect your payment date to remain the same as before.
If you are already enrolled in autopay, you will receive a notice before a payment is debited.
Borrowers making payments for the first time should watch their inboxes and mailboxes for notice of their new billing date.
“What we’ve been working hard to do is to make this as seamless as possible for those people who are used to it,” Buchanan says, noting the loan servicing system is not one that was meant to turn off and on (and, potentially, off and on again).
You'll want to ensure that your servicer has your most up to date information (bank info, address, phone number, etc.).
What to do if you can’t meet loan payments
“This very moment is when they should be looking at what their options are,” says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors. “If they think they’ll need an income-driven plan, now is the time to get the paperwork in.”
If you think you may have difficulty repaying your debt, your best first option is to enroll in an income-driven repayment plan, which could help keep your payments manageable by setting the amount you pay at a portion of your income. It could even be zero if you’re unemployed or underemployed (earning under 150% of the poverty line).
Your next best option is an unemployment deferment if you’re out of work. It allows you to postpone repayment of federal student loans for up to 36 months if you’re receiving unemployment benefits or working part time while looking for full-time work. The catch is that, unlike the current payment pause, interest may accrue and be added (capitalized) on top of your total loan when you resume payments.
If you were already in default
Payments are automatically suspended for all borrowers, including those who were more than 31 days delinquent prior to March 13, 2020, or became more than 31 days delinquent soon thereafter. That means the loans are in forbearance and won’t default.
Default on federal loans happens when a payment is 270 days past due, sending your loan to collections and exposing you to damaged credit, garnished wages and seized tax refunds.
For borrowers in loan rehabilitation, each month of the forbearance would also count toward the nine months needed for rehabilitation.
For those with federal student loans in default, all collection activities are suspended for as long as the forbearance lasts. You can get a refund for any forced student loan payments made since March 13, 2020. If your tax refund was seized before March 13, 2020, it will not be returned.
If your loans were already in forbearance, any interest that already accrued will still be added to your loan principal when your repayment begins, but during the current waiver no new interest will be calculated.
Delinquency means you are late on a payment. At 90 days late, servicers notify credit reporting agencies. At 270 days late, the loan is in default and collections efforts begin, leading to consequences such as wage garnishment and seizure of tax refunds.
What to ask your servicer
You don’t have to wait to enroll in an income-driven repayment plan or an unemployment deferment, but your application won’t officially be processed until repayment begins, Buchanan says. What you can do now is talk to your servicer, gather your documents and get the ball rolling.
Buchanan advises borrowers to contact servicers (or use their websites) now and submit everything needed to change repayment plans or pause payments. You should receive confirmation via email or in your servicer portal that your enrollment is moving forward.
But it’s always a best practice to get anything you discuss over the phone in writing. Keep records of who you spoke with and the date.
When you call your servicer, ask about enrolling in an income-driven plan. There are four plans, but one that’s available to all federal direct loan borrowers is Revised Pay As You Earn, or REPAYE. It sets payments at 10% of your discretionary income and extends repayment to 20 or 25 years.
Parent PLUS borrowers should ask about income-contingent repayment, which caps payments at 20% of your discretionary income and extends repayment to 25 years.