The payment pause for federal student loans is expected to end in the coming months, but struggling borrowers may have options for getting more time to repay, according to higher education expert Mark Kantrowitz.
Student loan payments ( Photo: Chicago Sun-Times )
The US Department of Education is set to resume the collection of student loan payments soon after a break of more than three years.
Deferments and forbearances are available for undergraduate and graduate students who may not be financially prepared to start repaying their loans. Borrowers may be able to postpone their student loan payments by requesting a deferment or forbearance. Deferment options include unemployment deferment for the jobless when payments resume and economic hardship deferment for those dealing with financial challenges.
Other deferments include the graduate fellowship deferment, the military service and post-active duty deferment, and the cancer treatment deferment.
A borrower may request a forbearance if they don’t qualify for a deferment. Under that option, borrowers can keep their loans on hold for up to three years, but interest accrues during this period, resulting in a larger bill when it ends. Struggling borrowers are best off finding a payment plan they can afford, such as income-driven repayment plans that cap monthly payments at a percentage of discretionary income and forgive any remaining debt after 20 or 25 years.
The Biden administration is also working on rolling out a new repayment option under which borrowers would pay just 5% of their discretionary income toward their undergraduate student loans.
Borrowers could see significant savings under this plan.
For instance, a borrower making $40,000 a year would currently have a monthly student loan payment of around $151 under the existing Revised Pay As You Earn Repayment (REPAYE) plan. Still, with the new option, that monthly bill would drop to $30, and some borrowers wouldn’t owe anything each month.
The end of the payment pause is contingent on the Supreme Court’s decision on the Biden administration’s debt-forgiveness plan. If the court hasn’t ruled on the plan by the end of June or if the Education Department can’t carry out the relief by then, the bills will pick up at the end of August. While the Education Department may try to extend the pause, borrowers should prepare for the bills to resume sooner rather than later.
