Federal Student Loan Freeze Extended (Again) — How to Make the Most Of It

Update 4/6/2022: On April 6, 2022, The Biden administration announced that it is again extending the payment pause on federal student loans through August 31, 2022.

Up until this week, the Biden Administration was adamant: The federal student loan payment freeze would end on January 31, 2022, so borrowers should plan to enter repayment in February. As recently as December 13, White House Press Secretary Jen Psaki said student loan payments would resume as scheduled. She stated that there were no plans to extend the federal forbearance period. 

However, rising cases of COVID-19 and the Omicron variant caused the administration to change course. On December 22, the White House and U.S. Department of Education announced that the federal student loan payment freeze would be extended for an additional 90 days. Now, federal student loan payments are scheduled to resume May 1, 2022. 

5 Ways to Make the Most of the Federal Forbearance Extension

If you have federal student loans, you can use this unexpected change to pay down your debt and improve your financial situation. Here are five ways to make the most of the 90-day extension: 

1. Build Your Emergency Fund

If you’re like most people, you may not have much money — if any — in savings, making you vulnerable to emergency expenses. A flat tire, an unexpected dental visit, or a sudden illness can leave you scrambling to pay your bills. 

Establishing a financial safety net protects you against inevitable emergencies that pop up. If you have federal student loans, you won’t have to make payments January through May 1, giving you four full months to save money. 

The average monthly student loan payment is $393. If you tuck that money away into savings each month until the federal forbearance period ends in May, you can save $1,572  in an emergency fund and establish a decent cushion against the unexpected. 

2. Make Your Payments Anyway

While payments are suspended until May 1, you have the option of making your payments anyway. Why is that a good idea? Federal student loan interest rates are set at 0% until the federal forbearance period ends. With no interest accruing during this time, any payments you make will go entirely against the principal. If you can afford it, making payments now will help you pay off your loans faster and save money. 

3. Pay Down High-Interest Debt

Depending on your situation, you may have other forms of debt, such as credit cards, auto loans, or medical bills. You can use the student loan payment freeze to make extra payments against your high-interest debt. You’ll save more money overall by paying off your most expensive debt sooner. 

4. Refinance Other Loans

If you have a mix of private and federal student loans, now is an excellent time to refinance your private ones. Private student loans aren’t eligible for the federal student loan forbearance period, so payments are still due and interest will continue to accrue. 

When you refinance, you can opt to refinance only your private loans — leaving your federal ones intact — to take advantage of today’s very low rates. You could qualify for a significantly lower interest rate or extend your loan term to get a lower payment. 

The savings from student loan refinancing can be significant. Consider this example: 

Nancy has $30,000 in student loans at 4.75% interest and a 10-year term. She’s sick of her loans and wants to pay them off quickly. She decides to refinance and opts for a seven-year loan. Thanks to her excellent credit and low debt-to-income ratio, she qualifies for a 3.00% fixed interest rate. 

Her monthly payment increases by $82 — going from $315 to $396 per month — but she saves over $4,400 over the life of her repayment term. And, she’s debt-free three years earlier than if she’d stuck with the old loan terms. 

You can use ELFI’s student loan refinancing calculator to find out how much you can save by refinancing your debt.*

[Note: While you can refinance both federal and private loans, think twice about refinancing federal student loans right now. If you refinance your federal loans, they’ll become private ones, and you’ll no longer be eligible for the federal forbearance period, forgiveness programs, or other benefits.]

5. Develop a Plan for May

Approximately 42 million student loan borrowers benefitted from the federal student loan payment freeze. That means millions of people haven’t had to make payments on their loans since March 13, 2020. 

While the Biden Administration has extended the federal loan payment freeze for another 90 days, May will be here before you know it. Ahead of the extension’s expiration date, come up with a plan for managing your loans so you don’t fall behind. If you aren’t sure what to do, consider these ideas: 

• Enroll in an Income-Driven Repayment ( IDR) Plan: While the specifics vary by plan, IDR plans work by extending your loan term to 20 or 25 years and by basing your monthly payments on a percentage of your discretionary income. If your income is relatively low compared to your family size, you could get a significant payment reduction. If you decide it’s right for you, you can apply for IDR plans by contacting your servicer or filling out an online IDR application. 
• Apply for a Direct Consolidation Loan: Another way to lower your payments is to consolidate your federal loans with a Direct Consolidation Loan. If you opt for this strategy, your loan term will be extended and you’ll have up to 30 years to repay your loan. With a longer term, you can get a lower payment and combine all of your loans into one easy-to-manage account. And, your loans remain federal, so you can still utilize benefits like IDR plans. You can apply for a Direct Consolidation Loan online. 
• Request Forbearance: If you have financial difficulties, medical issues, or changes in employment that affect your ability to repay your loans, you may be eligible for a federal general forbearance. If you qualify, your loan payments could be suspended for up to 12 months at a time, for a maximum of three years over the life of your loans. 
• Refinance your loans: Once the pause on federal student loan payments ends, you may want to refinance your loans to take advantage of low interest rates. You can take steps now to ensure you get the best rates possible. Focus on improving your credit score by paying down existing debt, making all of your required payments on time, and not applying for new lines of credit for a few months.

Preparing for Your Loan Repayment

Although the federal student loan payment freeze has been extended through May 1, 2022, borrowers should start preparing for repayment to begin. By researching your options and bettering your finances while the pause on payments is in effect, you can effectively handle your loans once repayment begins. 

If you decide that student loan refinancing makes sense for your situation, you can check your rates and loan options online without impacting your credit score.* Need help navigating the process? You can reach ELFI’s student loan advisors by phone, chat, or email:

• Phone: 844-601-3534 (call or text)
• Email: Answers@ELFI.com