Student loan relief extended until Sept. 30: How to take advantage of it

When you mix federal student loan debt with other bills, you are about to take another pandemic-related hiatus.
Those who lost a job during the pandemic and now have to decide whether to pay off their student loan debt or buy groceries can withhold federal student loan payments until September 30th.
The federal student loan payments were temporarily suspended for more than 42 million borrowers on January 31.
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The move means the interest rate on many federal student loan payments will remain at 0% for an additional eight months. (But remember, millions of private student loan payments and some federal student loans were not covered by this deal.)
Time to breathe and pay off other debts
"It really gives people an opportunity to get their financial lives in order," said Kristen Holt, CEO of GreenPath Financial Wellness, a Michigan-based nonprofit that provides a variety of services nationwide, including a debt management program and student loan financial advice.
Some families, Holt said, could use this time to pay off high-yield credit card debt or other bills. Others, if possible, could try to allocate extra money to set up or top up an emergency fund.
With Holt addressing some other financial troubles, many families will be placed on better footing once student loan bill payments resume later this year.
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"At the moment," said Holt, "nothing is taken. You still owe the money."
The temporary financial hiatus, first announced in March, was renewed twice last year and then again, most recently at the request of President Joe Biden, who took executive action on the matter on his first day in office.
"Too many Americans struggle to pay for basic needs and provide for their families," a US Department of Education warning said.
"You shouldn't be forced to choose between paying your student loan or putting up food."
Time to review income-related plans
Holt told me in a phone interview that many borrowers should consider signing up for income-based repayment plans while the break persists.
This is because the months when they don't have to make payment count in their favor on some income-based plans that offer credit at the end of a 20 or 25 year period.
Mark Kantrowitz, a student loan expert, noted that the CARES bill, passed in March, specifically counts the payment pause and interest waiver as if the payments had been made.
Kantrowitz said he generally advises borrowers to consider an income-based repayment plan if their total student loan debt at close exceeds their annual earnings, especially if they want to seek public loan facilities.
The federal budget-friendly, income-based student loan plans can help you avoid default when your income is low compared to your student debt burden. Generally, monthly payments are calculated based on the borrower's income and family size, and the plans may be cheaper than other options.
Experts usually say borrowers should go for the repayment plan with the highest monthly payment they can afford so that interest rates don't keep rising in the long run.
Will there be another payment pause after September? The Biden administration left this option open. But borrowers should take advantage of what they know is currently available.
What happens after the break?
Sarah Sattelmeyer, director of the Pew Charitable Trust's Student Borrower Success project, said financially troubled borrowers will need to consider what happens when the payment hiatus ends.
The latest addition, she said, will give borrowers significant leeway at a time when many have lost their jobs or their hours have been cut back during the pandemic.
However, many borrowers may still struggle even if the job image improves as some expect people to get a coronavirus vaccine again.
"Even before the pandemic, many families had financial problems," said Sattelmeyer.
"The financial security of the family determines the repayment behavior of the borrower."
Policy makers should use this time to take steps to help student loan borrowers smoothly resume payments when necessary.
In addition, Kantrowitz notes that loan service providers will suddenly face the challenge of resuming repayment of all borrowers.
Americans seem concerned about an uncertain future, according to Pew research. Almost a quarter are not sure whether their household will be financially secure in six months.
"In addition, 58% of borrowers said it would be difficult to resume student loan payments next month if they had to," according to a Pew poll published in October.
Sattelmeyer said those at greatest financial risk will need more help once the payment hiatus ends.
In the future, some borrowers may need a grace period after the payment break has expired, which can help people who may miss their first few payments right after the program ends. A safety net must be in place, she said.
What is often not understood is that not all student loans are covered by this payment break.
Around 9 million borrowers - those on private student loans and those on most Perkins and federal family education loans that are not owned by the federal government - are not getting automatic relief, according to the Student Borrower Protection Center, a nonprofit advocacy group.
Private student loans require borrowers to apply for relief and their options can be very limited. It all depends on what, if anything, the lender could offer. Some of the short-term solutions previously offered have even expired, according to the Student Borrower Protection Center.
"Borrowers with commercially held FFEL programs and Perkins loans may be eligible for assistance, but it is neither automatic nor as comprehensive as those with government-held loans," said Pew's Sattelmeyer.
Kantrowitz noted that FFEL loan and Federal Perkins loan borrowers can consolidate their loans into a direct federal consolidation loan to qualify.
He pointed out that FFEL borrowers may be eligible for other types of financial relief, such as: B. Postponement of Economic Distress, Postponement of Unemployment, Forbearance and Income-Based Repayment. The monthly payment under an earnings-related repayment plan is zero if the borrower's income is less than 150% of the poverty line.
Pew Charitable Trusts released a report in January highlighting the importance of reducing the complexity of the student loan repayment system. One recommendation includes that loan service providers be temporarily allowed to enroll borrowers on an income-based plan without the need for extensive documentation.
According to Pew, borrowers were struggling to navigate the repayment system when the economy was working much better than it is now.
The risks are high when student loans are not paid back. Borrowers "may face collection fees, garnishment of wages, withholding funds from income tax refunds, social security and other federal payments, damage to their credit scores, and even being ineligible for other aid programs like home ownership," Pew noted.
Going forward, Biden has proposed lending up to $ 10,000 in federal loans to borrowers. However, borrowers have no guarantees that such a change will take place or when.
At the moment it is important to take a realistic look at your overall financial situation and to use the next eight months to your advantage.
Contact Susan Tompor at Follow her on Twitter @tompor. To register, please go to Read more about the business and subscribe to our business newsletter.
This article originally appeared in Detroit Free Press: Student Loan Relief Extended To September 30: How To Take Advantage

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