Federal student loan forbearance is ending and payments resume May 1.
If you’re one of the many million Americans with student loan debt that makes up the current estimated total of over $1.5 trillion, you may have had your calendar marked to start making payments in January 2022. However, President Biden extended the payment freeze until May 1, 2022.
Whether you had not started payments yet or not, it will likely take some adjusting to add this payment back into your plan. There are a few things you can do now to be ready for May:
1. Review the loan terms.
You must fully understand how much you owe, what the interest rates are along with the required monthly payments. Many people have more than one loan or service provider. Make sure to gather all of the information to understand your situation.
2. Make a budget.
Create a spreadsheet of current income and expenses to get an idea if you can easily make your required payments going forward, or if you need to explore alternate options. If your income has changed and the minimum payment is now too high, you may choose to explore repayment plans or deferment, or even refinancing.
3. Explore options to lower payments.
There are several types of repayment plans offered by the U.S. Department of Education, including those that are income-based, which may lower your monthly required payment. For example, if your payment is set at $500 and you’re now unemployed, the new payment amount under a plan that is based on your earnings (including unemployment) would be a small percent of income, such as 10 percent. These types of repayment plans require an application with documentation for approval.
4. Explore deferment options.
If you’re in an approved rehab training program for the disabled, are unemployed or enrolled half-time in a college, you are possibly eligible for a loan deferment. You could also qualify for a deferment if you’re on active-duty military service. There is also a Public Service Loan Forgiveness Program that is available to those in specific professions and working for organizations such as non-profits and government.
5. Consider refinancing your loan.
If you have good credit and good income, you may benefit from refinancing your loan or consolidating loans to lower the interest rate or payment. Although once you refinance a federal loan, it would no longer be eligible for any forgiveness programs, paused payments or an income-driven repayment plan. Federal borrowing offers benefits that a private loan does not.
6. Don’t wait and hope for loan forgiveness!
If you were hoping a government plan would move forward to forgive all student loans, it is a debate that will likely continue throughout the year. There are no formal proposals or plans on the table. Service providers will continue to get busier, so late April is too late to start considering your repayment options. If you need to apply for a repayment plan or want to refinance, you’ll need to start the process now.
Lastly, if you’re in a position to make payments that exceed the amount required, or if you can make an extra payment here and there over the year, you’ll be surprised at how it helps decrease the balance and pay off the loan more quickly.
If you would like to have your current financial plan reviewed, or if you are looking for a new financial plan, schedule an appointment on Bayntree’s online calendar by selecting the date and time that is most convenient for you! You can also always reach us by emailing firstname.lastname@example.org.
Bayntree Wealth Advisors provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.