A little over three months. How much time is left before about 41 million federal student borrowers have to start repaying their loans?
Student loan payments resume
The federal government froze student loan payments at the start of the coronavirus epidemic, and has extended that freeze several times, most recently just before Christmas.
The Department of Education has said that payments will resume from May 1. What should borrowers do to prepare? Betsy Mayotte has some ideas. He is the founder of the Institute of Student Loan Advisors, a non-profit organization that provides free counseling to borrowers. Here are her seven tips for borrowers before the May 1 resume:
1. Get acquainted (or re-acquainted) with your loan.
"Even if the break is extended, borrowers should use this opportunity to tidy up their ducks," says Mayotte.
Get answers to the following questions: How much is your balance? What type of loan do you have? What is your service company? What are your interest rates?
For federal loans, go to www.studentaid.gov to find that information.
The more you know about your loan, the better off you will be at figuring out how to handle it. And it is more important to know which company your loan provides services to as some of the service providers have changed during the epidemic.
2. Make sure your contact information is up to date.
Make sure your loan services have your correct contact information: email address, mailing address and phone number. When the payment break is over, Mayotte says, they will send you some really important information that you want to see.
3. Find out what your monthly payment will be.
Your student loan account with your service provider should have a list of monthly payments. If you cannot access this information online, you can also call your service provider. Once you understand your monthly payments, then ask: Is it affordable? If not, there are plenty of payment options available. (More on that below!)
4. If you can afford it, start paying before the break is over.
A break on the student loan payment also sets the loan interest rate to 0%. It's a gift! This means that all payments made during the break go directly to the principal - not interest. For borrowers who may be in a comfortable financial position, Mayotte says this is the best time to pay off as much debt as you can.
5. If you don't think you can afford your monthly bill, look for additional payment options.
The Federal Student Loan Program has a few options for reducing your monthly payments. Some depend on your balance; Others depend on your income.
"Thankfully there are really good tools out there that help borrowers decide what their payments will be under each plan, but more importantly, how much they will pay in the long run under each plan," says Mayotte.
The loan simulator and student loan calculator on the Department of Education's website, developed by the Institute of Student Loan Advisors, are two tools that can help you figure out which payment program is right for you.
If you are running a loan waiver program such as a public service loan waiver, both calculators will also show if these programs will actually pay for you.
6. Beware of scams.
As payments approach, Mayotte says she's starting to see more student loan-related scams on social media, via email, and through calls and voicemail.
If someone approaches you to ask for your student loan account PIN or password, it's a huge red flag. No legitimate student loan company will ask you for that. In fact, under the STOP Act, it is illegal for service providers to use personal information to access borrowers' assistance records. Any entity that is allowed to access this data - the loan service, your university, the Department of Education - will have their own credentials and will not need to ask for the recipient's PIN or password. But that doesn't stop scammers from asking.
If they promise to forgive you just outside the gate without really knowing anything about your situation, that's another big red flag.
7. Don't count on blanket loan waivers.
President Biden has indicated that he is unlikely to use his executive powers to write off student debt, although his administration has done away with some debt. Rough pre-existing forgiveness programs. Mayotte says if you are not enrolled in an existing loan-forgiveness program, do not rely on a waiver policy.
"Here's the problem: student loans are not the problem," she explains. "The problem is the cost of higher education. Forgiving student loans is like finding a way to reduce bleeding in the first place, rather than trying to figure out how to prevent it."
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