Preparing for Student Loan Payments Resuming on January 1, 2021December 2, 2020
Update 1/21/2021: President Biden has issued an executive order to extend the federal student loan payment suspension through Sept 30, 2021. We will continue to monitor these changes and post them as they occur.
In March of 2020, the CARES Act suspended federal student loan payments. Then, in August, an executive order extended student loan forbearance through the end of the year. This was a welcome relief for many individuals, as the COVID-19 pandemic meant extreme levels of unemployment, peaking at 14.7% in April.
Now, however, the pandemic continues, but federal student loan forbearance is slated to end on December 31, 2020. It’s unclear whether some type of student loan relief will be extended in 2021. In the meantime, it’s important to prepare for regular student loan payments to resume in the new year. Here are a few things to consider as you prepare your budget for the coming months:
Current CARES Act Benefits for Federal Student Loan Borrowers
CARES Act student loan relief will continue through the month of December, and your loan balance after payments resume will be based on whether you made payments during the student loan forbearance period.
Interest did not accrue during the student loan forbearance period, so if you continued making payments, then they were automatically attributed to the principal balance. That’s good news for borrowers because it means saving on total interest costs.
If you were unable to continue making payments on your loans, don’t worry. Because your loans didn’t accrue interest, you’ll still have the same payment amount as you did before student loan forbearance began. You can pick up where you left off.
When Does Student Loan Repayment Resume?
As it’s uncertain whether student loan relief may be extended in 2021, borrowers should prepare to resume payments in the new year. The first day to resume regular student loan payments will be January 1, 2021.
Will Joe Biden’s Administration Forgive Student Loans or Extend Forbearance?
Joe Biden’s administration has expressed the desire to extend another stimulus package, which would include another temporary student loan forbearance period. Additionally, Biden has voiced support of a plan to forgive $10,000 in student loans for United States borrowers.
These initiatives, however, will remain on hold until he takes office on January 20, 2021. In the meantime, borrowers should move forward as though no student loan relief will be extended.
How to Prepare for Student Loan Repayment
It’s important to make a financial plan in preparation for the end of CARES Act student loan forbearance. You can take several steps to ensure you’re ready to continue student loan repayment in January.
Continue Making Payments on Your Loans
One of the most important things you can do to prepare for the new year is to continue making payments on your student loans starting in January. If student loan relief is extended after that time, then you can adjust your plan. For now, though, it’s best to assume that payments will continue normally.
Make Sure You Have a Plan
If the Coronavirus hasn’t changed your financial situation, then you should continue making payments as usual. If your situation has changed, however, a few different options may help alleviate the burden of student loans.
You may choose to consider an income-driven student loan repayment plan, unemployment deferment or student loan refinancing. All of these options are explained in detail below.
Check Your Debt and Budget for Best & Worst-Case Scenarios
Unemployment rates skyrocketed because of the Coronavirus pandemic. If you’re struggling to budget for your student loans, know that you aren’t alone. Check your student loan balance and your budget and prepare accordingly.
If your payment will be manageable, then plan to make a timely payment in January. If you’re concerned about your student loan payment, however, then set aside money for the payment where you can. You can also speak with your lender if you cannot make your payment to discuss the options available to you.
Follow the Latest News
As the world continues to adjust to the Coronavirus pandemic, federal student loan guidelines may be subject to change. Keep up with the latest student loan news to be sure you have the most current information.
Switch to A Repayment Plan If You Can’t Afford Your Payments
If you’re having difficulty making student loan payments after CARES Act student loan forbearance ends, you can apply for an income-driven repayment plan. The federal government offers a few different types of income-driven repayment plans, but the bottom line is that you’ll only pay a percentage of your income each month. The type of plan you qualify for will determine the exact amount you’ll pay, but it will always be proportional to your income.
Apply for Unemployment Deferment
If you’re currently receiving unemployment benefits, then you may be eligible for an unemployment deferment. This option may also be available if you’re working part-time but are actively looking for a full-time job. If the Coronavirus impacted your financial situation, then deferment could provide temporary student loan relief until your financial situation improves.
If you’re approved for this option, you may be able to defer your federal student loans for up to 36 months, depending on your loan type. To maintain unemployment deferment, however, you’ll need to reapply every six months.
Consider Student Loan Refinancing
When you’re approved for student loan refinancing, the new lender will pay your remaining loan balance and offer you a new loan. You’ll also receive new loan terms, which may include a better interest rate, as well as a student loan repayment term that better fits your financial goals.
Your new interest rate is primarily based on your credit score and debt-to-income ratio. If you’re financially strong in these areas, then student loan refinancing could be the perfect choice for you after CARES Act federal student loan forbearance ends.
The Bottom Line
Remember that if you’re anxious about student loan payments resuming in the new year, you aren’t alone. COVID-19 has impacted many people’s financial stability, and several different options may be available to help make your student loan payments more manageable.