Student loan borrowers could be in trouble when payments resume
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When the payment break on federal student loans ends on Jan.31, 75% of borrowers say their finances will suffer.
It is the discovery of a new investigation from Bankrate and BestColleges, which surveyed more than 4,700 adults in November.
Over 40% of borrowers expect having to pay their bills again to reduce their ability to save. A quarter are worried about how they will cover their rent or housing costs in February. The average monthly payment for a student loan is around $ 400.
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“Students often face one of the most stressful pitfalls in personal finance: Higher education increases their earning potential for life, but paying for and paying it back can strain their finances and their mental health,” Bankrate.com analyst said. Sarah Foster.
Nonetheless, there are steps borrowers can take before resuming payments if they are worried. Here is what you need to know.
When will the invoices be due again?
In February. Your exact due date will vary depending on when in the month you started paying off your student loans.
Although the payment break has been extended several times during the coronavirus pandemic, don’t count on having more time, said Betsy Mayotte, president of the Institute of Student Loan Advisors, a nonprofit organization. The US Department of Education said the latest expansion was the last.
“Better prepare now,” Mayotte said.
Over the next two months, borrowers should make sure their student loan officer has their current contact information, said Marc Kantrowitz, an expert in higher education. If you have moved, for example, this may not be the case.
If you were signed up for automatic payments and your banking information has changed, you will also need to notify your server.
Putting money aside for resuming payments can also make the transition less painful, experts say.
Millions of borrowers will find they have a new lender when the bills pick up.
Indeed, three companies that handle federal student loans – Navient, the Pennsylvania Higher Education Assistance Agency (also known as FedLoan), and Granite State – all recently announced that they would end their relationship with the Government of Canada. by 2022.
Affected borrowers are expected to receive multiple notices regarding the change, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a professional group for federal student loan services.
In February, if you mistakenly send a payment to your old server, the money should move to your new one, he said.
If you are still unemployed or facing other financial hardships due to the pandemic, you will have options.
If you do not qualify for either, you can use a abstention to continue to suspend your bills. But keep in mind that interest will accumulate and your balance will be larger (sometimes much larger) when you start paying again.
If you expect your struggles to last a while, it may be a good idea to sign up for an income-based repayment plan. These programs aim to make borrowers’ payments more affordable by capping their monthly bills at a percentage of their discretionary income and forgetting any remaining debt after 20 or 25 years.
How to choose the right payment plan?
The lives of many people have been turned upside down by the pandemic.
If your situation seems different from what it was over a year ago, it may be a good idea to review the available payment plans and find the one that works best for your current situation.
In the meantime, the law has also changed.
Cancellation of student loans is now tax-exempt until at least 2025, thanks to a provision included in the $ 1.9 trillion federal coronavirus stimulus package that President Joe Biden enacted in March. The policy will likely become permanent, experts say.
It can do income-based repayment plans more attractive because they often come with lower monthly payments and borrowers are unlikely to face a massive tax bill at the end of their 20 or 25 years of payments.
But if you can afford it, the standard repayment plan is only for 10 years.
If you decide to change your repayment plan, Mayotte recommends that you submit this request to your manager as soon as possible. Lenders are likely to be overwhelmed when they have to start collecting loan repayments from tens of millions of people again.
“I am very concerned that there are big service delays,” Mayotte said.
Is student loan cancellation still possible?
President Biden has called on the Education Department and the Justice Department to review its legal authority to write off student debt through executive action. The fact that these reports are still pending may explain why we have yet to hear anything more definitive, experts say.
“He will not take any action until this report comes back,” Kantrowitz said.