The Biden administration announced a plan to freeze federal student loan payments through Aug. 31, extending a moratorium that has allowed millions of Americans to postpone payments during the coronavirus pandemic.
As CNBC reported, the U.S. Department of Education also plans to pull millions of borrower accounts out of default and mark those accounts as current as part of the plan.
Student loan payments were scheduled to resume May 1 after being halted since early in the pandemic. But following calls from Democrats in Congress, the White House wants to give borrowers additional time to prepare for payments. The action applies to more than 43 million Americans who owe a combined $1.6 trillion in student debt held by the federal government, the Associated Press reports.
We asked Anna Helhoski, who NerdWallet relies on as their authority for all things student loans, to go over some of the key angles that borrowers need to know to maximize their money and pay off their student loans faster.
What are the top “must knows” during this time?
"First, know that you don’t have to make payments on your federal student loans until September 1, 2022, unless the pause is extended again. Second, make a plan for your loans before the payment pause ends. If you think you’ll have trouble paying your loans by September, contact your servicer now to find out about your options before repayment starts. Your best option might be enrolling in an income-driven repayment plan, which will tie the amount you pay to your income. For those who have defaulted on their student loans, the Education Department is automatically returning those loans to good standing. If you can pay down your loans before repayment restarts, consider doing so as this will help you chip away at your principal faster while interest is not accruing."
Will interest have to be repaid back later?
"No. Federal student loans have not seen interest accrue since March 2020 and won’t until September 2022. There are no payments due and you won’t owe any back payments on principal or interest. That said, if you have unpaid interest from before the payment pause that had not yet capitalized, or been added to the principal, consider paying that off before the end of the pause."
Is there any way students, current or past, can negotiate down their principal amounts for either private or public student loans?
"In a vast majority of cases, the only way to lower your principal is by paying off your loans, for both federal or private loans. A student loan settlement is a rare, but possible option, but the servicer would need to agree to it. If you need to lower your monthly student loan payments, contact your servicer or lender to see what options are available to you."
What's something we should know about the Public Service Loan Forgiveness (PSLF) program and how that can help during this time?
"Public Service Loan Forgiveness (PSLF) program is a notoriously challenging program to qualify for, but the Department of Education issued a waiver through October of 2022 to expand eligibility for past payments. Most importantly, under the waiver, more payments are being counted toward the 120 needed for forgiveness. If you’ve been making payments on loans that were previously ineligible for PSLF, but you’ve been working for a qualified employer, contact your servicer to see if PSLF is available to you and the next steps you need to take."
What's one part of this discussion that needs more emphasis?
"Don’t depend on broad student loan cancellation for your student loans. Even if debt cancellation happens, it’s most likely to be a set amount. That means if your entire balance isn’t canceled, you’ll still need to continue making payments until your entire debt is cleared. The best way forward is to make sure you have a plan for when payments restart. If you’re unsure how you’ll be able to make those payments, contact your servicer now to find out your options to keep your loan in good standing. That could be enrolling in an income-driven repayment plan or it could be taking a pause, with interest accrual, through forbearance or deferment. Avoiding default is key, it happens after 270 days without making a payment."
Anna Helhoski is NerdWallet's authorityon student loans.