Initiated as a COVID-19 emergency relief measure in early 2020, the student payment pause has been extended several times over the past two years. The latest extension was announced by President Joe Biden in mid-December 2021. According to that announcement, student loan payments restart on May 01, 2022.
The two year payment pause has given student loan borrowers much needed time to regroup financially. However, despite the student loan moratorium, a large number borrowers are still struggling to catch up with their finances. Many are convinced that the payment pause will be extended again. A few are even holding out hope that student loans will be forgiven completely.
The truth is nobody knows for sure what’s going to happen in three months. A lot can happen between now and the payment restart date. Regardless, one thing is for sure, if student loan payments restart on May 01, 2022, you will have to start making payments. Saying ‘I didn’t think it would really happen’ won’t cut it. If you don’t make those payments by the specified due dates, you will be charged a late fee fine and interest. This will only increase the cost of your debt.
Financial experts advise student loan borrowers to be prepared to start payments. If the payment pause gets extended, that’s great news for you! If it doesn’t, you will be prepared.
Here Are 12 Things You Should Do Before Student Loan Payments Restart
#1. Find Out Who Your Loan Servicer Is
Student loan servicers sometimes end their contract with the federal government for various reasons. When that happens, a new loan servicer is assigned to take over their responsibilities. There’s no way for you to know whether you have the same or different loan servicer and you definitely don’t want to wait till the last minute to find out.
As part of your preparations, it’s a good idea to start with finding out who your servicers are for each loan. Make a note of their names and contact information.
If you haven’t done this before, here’s where you can get the details of your loan servicers and types of loans. Log in to your dashboard at StudentAid.gov. In the ‘My Aid’ section, select ‘View loan servicer details’. You’ll find all the information you need in this section.
Alternately, you can call 1-800-4-FED-AID (1-800-433-3243) for loan servicer details, if you have problems logging in or need any other help.
#2. Check Your Contact Information & Update If Necessary
Have you changed your phone number, residential address or email id recently or any time over the past two years? Update your contact details on your StudentAid profile, your profile and your loan servicer’s website.
Even if your contact information has remained the same, it’s still advisable to check that the details are correct in all three places. You want to make sure that your loan servicer can contact you easily with important updates about your payments. Wrong contact information could cause you to miss notifications, resulting in missed payments and a domino effect of consequences.
#3. Get Details About Your Next Payment
Your loan servicers will send you information about your payment amounts, payment due dates, and upcoming interest. But these notifications will only be sent out closer to the student loan payment restart date. Generally, payments are due around 21 days after receiving the billing statement. This gives you very little time to sort things out and make the necessary arrangements at your end.
Knowing your payment details and deadlines in advance can help you be better prepared. Regardless of exactly when loan payments resume, the specifics will stay the same, so why wait? You know who your loan servicers are. Log in to their websites and retrieve details of your upcoming payment amounts and schedules. If you can’t find the information you’re looking for or you have a question or need help, call or email your loan servicer.
#4. Create A Budget
You know how much you have to pay towards your loan repayments each month. What you need to figure out next is whether you can afford to repay that debt every month. Not paying is not an option. If you can’t afford the payments, you still have time to figure out an alternative.
A budget essentially tracks your monthly income and expenditures. It allows you to see how much money you have left over after paying off your essential expenses. Essential expenses would include items such as rent or mortgage, utilities, groceries, transportation, and daycare/childcare costs.
If you haven’t created a budget before, do it now. In your new budget, put all your loan payments under the essential expenses column. This should include your private and federal student loan payments.
Is your income sufficient to cover all your essential expenses? If it is, you’re all set for when student loan payments restart. If it isn’t enough, start exploring your options right away. Fortunately, there are a few things you can do rather than miss payments.
#5. Explore Your Repayment Options
The federal government offers a number of repayment plans that you can choose from. All federal loan borrowers typically start out with a standard repayment plan. This is designed in such a way that you start payments when your grace period ends – that’s 6 months after graduation day. From thereon, you make equal monthly installments every month for a period of 10 years. The monthly installments in the principle and the interest.
If you cannot afford the monthly payments under your current repayment plan, explore the other repayment options that the federal government offers. Switching over to one of the income-driven repayment plans may be a better option for you. These plans are designed to set your monthly payments to your income so they are always affordable.
It’s important to make sure you’re on the best repayment plan for you so you don’t have problems payment. So definitely take time to look into what options are available and which, if any, would be a better for you when loan payments restart.
Use the College Raptor loan calculator to calculate your monthly payments under the different plans.
#6. Recertify Your IDR Plan If Necessary
If you’re already on an IDR (income-driven) plan and your income changed recently, you are expected to recertify your plan. This simply means updating your income and employment status as well as your family size. A drop in income or a larger family size may qualify you for a lower monthly payment. Check the requirements and recertify your IDR at https://studentaid.gov/app/ibrInstructions.action
#7. Check Your Autopay Status
Autopay or auto-debt is the most effective way to make sure that all payments go out on time every month. Autopay involves transferring the money directly from your banking account to your lenders.
Along with everything else, autopayments were also put on hold when the forbearance came into effect in mid-2020. You want to make sure that no autopayments were made at any time after that date. If any funds were transferred while the payments were on pause, you can request for a refund.
#8. Make Inquiries About Setting Up Autopay Again
Autopayments will not restart automatically after May 2022. You will need to set it up again. While you don’t need to do it just yet, it’s a good idea to make inquiries and find out about the formalities involved. That way you can have everything ready when loan payments restart. Banking procedures may have changed over the past two years and you don’t want to waste time navigating the formalities after the payments restart.
If you hadn’t signed up for autopay earlier, consider doing that now. Transferring the funds to the lender automatically every month offers multiple benefits. You won’t need to remember payment due dates, which reduces the chances of forgetting a deadline. Every payment will go out on time every single month provided that you have sufficient funds in your account. As an additional bonus, lenders usually offer a 0.25% drop in interest rate when you repay their money using autopay.
#9. Rehabilitate Any Loans That Are In Default
Federal student loans go into default when is payment is 270 days past due. Did you have any federal loans in default before the payment pause came into effect? The good news is, collections, garnished wages, and tax refunds were also put on hold for the past two years. But that will lapse and collection activities will resume when the moratorium ends. Don’t wait till then. Be proactive and rehabilitate your federal student loans as soon as possible.
You’ll need to contact your loan servicer and fill out an application to rehabilitate your student loans and get out of default. Every loan servicer has their own criteria for approving loan rehabilitation request.
If you don’t meet your servicer’s requirements and your rehabilitation request is rejected, applying for additional deferment or forbearance may offer temporary relief. This is not the same as the COVID-19 forbearance. Although payments will be suspended during the additional forbearance, your loans will accrue interest during this time. These are expensive options and should only be considered as a last resort.
#10. Weigh The Pros And Cons Of Consolidating Your Loans
Consolidating involves combining multiple federal student loans into one loan. This simplifies your payments as you have to keep track of only one payment amount and one due date. Loan consolidation may also lower your monthly payments and give you access to additional repayment plans and forgiveness programs. On the downside, you could lose the benefits associated with some of the loans.
Read more about consolidating federal student loans and its pros and cons to determine whether this is a good option for you. If it is, find out about the formalities so you have everything in order to initiate the process when forbearance ends.
#11. Have Extra Cash? Put It To Good Use
If you had been preparing to resume payments in January, you probably have spare cash in your account. Don’t let it lie there for another three months. Instead, use it to pay off your high-interest debts such as credit card debt.
Another way to put that money to good use is to build your emergency fund. If there’s one thing we’ve all learnt from the pandemic is the importance of having emergency funds. Get starting with building one if you haven’t already. If you have one, top it up with the spare cash. Experts suggest having at least three to six months’ worth of expenses in an accessible savings account, which acts as your emergency fund.
If you have an emergency fund and don’t have any high-interest debts to pay off, consider starting your loan payments in January itself. This will help you clear your debt earlier and you’ll also save in accrued interest.
#12. Stay Updated
Things are changing rapidly. The only way to stay on top of things is to follow up on what’s going on with the student loan pause extension. Read every mail and email notifications that you receive from your loan servicer right away. Don’t leave it for later and forget all about it. Staying updated will help you make informed decisions when the student loan payments restart