What To Do If You Expect Trouble Making Student Loan Payments Again

The Education Department declares this the "final" forbearance extension for federal student loan borrowers.
Anna HelhoskiAug 6, 2021

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The federal pause on student loan payments will continue through January 2022, the Education Department announced Aug. 6. That gives borrowers several months to prepare to make payments.

There's some indication that borrowers may struggle when payments restart: In a Pew Research Center survey conducted in May and June 2021, 67% of borrowers who responded said, if student loan bills arrived next month, they would have difficulty affording the payment amount.

For others, payments won't be a problem. For some — new grads, borrowers in forgiveness plans and those whose loans were in default before the pandemic began — restarting payments may require some advance planning.

Here’s what the student loan payment relief extension is likely to mean for you, depending on your situation:

The ongoing forbearance gives you enough time to make a change to your federal loan payments and avoid defaulting on the loans.

“There is no harm or downside in talking to your servicer now,” says Scott Buchanan, executive director of Student Loan Servicing Alliance, the trade association of student loan servicers. “You want to be well-prepared for whenever this does expire.”

If you know you’ll have difficulty repaying the debt, contact your servicer now about enrolling in an , or IDR plan — it caps payments at a portion of your income and extends the repayment term. If you don’t have a job, your payment could be zero. If you’re already enrolled in IDR, make sure to recertify your income if it has changed.

If your finances haven’t been affected by the economic downturn, you can use this time to prioritize financial goals.

Consider making payments to lower your overall debt, depending on . Your payments will be applied to any interest accrued first before your principal, but any payment will help you reduce the total amount you'll pay over the life of the loan. Since your loans are on automatic forbearance, you’ll need to contact the servicer to do so.

You can also make a dent in other financial goals, such as paying down credit card debt or padding your emergency fund.

All collection activities on federal student loans are suspended through January 2022, such as wage garnishment and collection calls as part of the CARES Act and the December memorandum extending relief, according to the Department of Education. This is expected to be extended along with the payment forbearance.

If you’re currently rehabilitating defaulted student loans, each of the months of nonpayment during the pause will count toward the nine needed to complete the process.

Federal student loan borrowers pursuing Public Service Loan Forgiveness don't need to make payments until payment eventually begins. All months of nonpayment will still count toward the 120 payments needed to qualify for PSLF as long as you're still working full time for an eligible employer.

If you were expecting to start making payments on your loan within the period of extended forbearance, your first payment won’t be due until repayment begins. Usually, interest accrues during a grace period, but if your six-month grace period overlaps with the administrative forbearance period, interest won’t grow.

Use this time to find out who your servicer is and what your first bill will look like.

If you think you can’t make your minimum payment when repayment begins, you can apply for an income-driven repayment plan to cap payments at a portion of your income (it could be zero if you don’t have a job). Apply for income-driven repayment at least two months before repayment starts.

Federal loans typically have a grace period of six months after you leave school. If you have student loans and last attended school in the spring, your payments would have started to come due this fall. The extended forbearance period would delay your first payment until the forbearance extension ends.

When you resume classes, you can defer payments until you finish school as long as you are enrolled at least half time. But student loans get only one grace period; you won’t have another after you graduate or leave school again.

Your lender may offer in the form of a payment pause or reduced payments. While a number of lenders structured relief plans ended during 2020, many are open to an extension or additional relief in 2021.

Contact your lender to ask about additional deferments or payment reductions. You can also apply for existing loan modification programs for financial hardship. These will vary from lender to lender — but interest will continue to accrue, unlike with federal loans.

You’ll likely have to apply for private loan relief individually since most lenders aren’t making payment pauses or loan modifications automatic, Mayotte says.

Student loan borrowers with the Federal Family Education Loan (FFEL) Program or Federal Perkins loans not owned by the Education Department don’t have access to the automatic forbearance.

To take advantage of the forbearance, you’ll need to combine your loans into a . Consolidating loans will cause any unpaid interest to capitalize, or be added to the principal balance. Contact your loan servicer to determine how consolidation will affect the total repayment amount, interest rate and loan balance.

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