Extended student loan payment break: what to do now

  • Federal student loan payments will remain suspended until August 31, 2022.
  • You can use the extra time to review your loan account details and pay down debt aggressively.
  • A payment break is temporary. You will have to pay off your loan balance when payments resume.
  • Read more about Insider loan coverage here.

Federal student loan repayment to remain on hold until Aug. 31, Biden administration announced in a press release On Wednesday. During this period, no interest will accrue on the loans and borrowers are not required to make any payments.

If this continual pause in payment sounds familiar, that’s because it is; The Trump and Biden administrations have extended this moratorium a total of six times. Federal student loan repayment has been suspended since March 2020 in an effort to ease some of the financial burden of the pandemic.

When will student loan payments resume?

As of now, student loan payments will resume on August 31. However, this is not the first time the deadline has been extended.

The COVID-19 pandemic has continued to cause significant financial challenges for many people in the US. The government met the initial wave of the pandemic in March 2020 with a robust relief package that included a pause in paying student loans.

As the spread of the pandemic gradually begins to slow, its financial effects are still reverberating throughout the US economy. This extension is intended to give borrowers time to recover financially and bring loan payments back into their budgets.

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“Even for those who were prepared, thousands of people have lost their jobs, had their wallets hit and their reserves broken, and they are trying to gain a foothold in this new normal,” says Dawn Dahlby, founder and president of the consultancy. firm Relevé Financial Group. “The pause is the government’s way of lending a hand and putting more money back into the pockets of those who need it most.”

How is student loan payment forbearance different from loan forgiveness?

A payment break is simply a temporary period when you don’t have to make loan payments. Forgiveness would alternatively permanently eliminate some or all of your debt.

“Look at it this way: Your monthly payment and accrued interest are currently being forgiven, but when the moratorium finally ends, you’ll pick up where you left off in March 2020,” says Andrew Pentis, a certified student loan counselor and debt expert. student at Student Loan Hero. “If you had $15,000 worth of federal loan debt back then, that’s at least how much you’ll owe once you resume active payment.”

Much of the conversation about federal student loan forgiveness has focused on President Biden’s campaign promise to cancel student debt. Politicians and activists have campaigned for the government forgive between $10,000 and $50,000 in debt, although neither of these proposals is official.

Instead of waiting for forgiveness, set up a plan for when payments resume.

“Stay on top of deadlines and other updates to make the best decisions possible,” Dahlby says. “As we’ve seen multiple times now, the government will continue to change its plans for how long the pause will last, and despite that uncertainty, one thing remains constant: You have time to prepare for loans if and when payments are due, and the best The time to start that preparation is today.”

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What should I do with my student loans now?

You have until the end of the summer before your student loan payments begin to resume — that is, if the moratorium isn’t extended again. If you haven’t been thinking about your loans for the past two years (a lot has happened, we don’t blame you), start small.

Pentis says you should contact your federal loan servicer to make sure all of your contact information is correct. On 16 million borrowers has or will have a new loan servicer in the next few months, so make sure your information is transferred correctly.

You should review your account details, including your loan balance and your loan interest rate.

Neeta Vallab is the founder of MeritMore, a search tool that allows students to estimate the amount of merit aid they could receive from private schools based on their GPA and test scores. She says that using the time to pay off your student loan debt as aggressively as possible can help you meet payment obligations more quickly.

“Time is always against you when you have loans that accrue interest,” says Vallab. “If you’re lucky enough to be in a phase where interest essentially stops, it’s a good time to rush. If you need money to pay rent, food, medical bills, etc., you have a little room to take care of those things.”

How can I pay off my student loans faster?

Although you are not required to do so, you may want to keep make student loan payments if your finances are still in good shape.

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Generally, when you pay off your loans, you have to pay the principal, or the full amount you owe, plus interest on the loan. But because the government won’t charge you interest for the next several months, your payments will go entirely toward the loan balance. This will allow you to pay off your balance more quickly and pay less interest over the life of the loan.

On the other hand, you can also use the time to keep progressing in your other financial goals. You may want to pay off other high-interest debt, build an emergency fund, or set aside money for retirement.

“Investing money that would otherwise go toward loan payments, finding opportunities to increase cash flow, and cutting out unnecessary expenses are all things borrowers can do in the coming months,” says Dahlby.