Millions of student loan borrowers who haven’t had to make a payment since the pandemic shut down the nation last winter just got an additional reprieve.
The payment pause, known as a forbearance, began March 13 as part of the original coronavirus relief package and has now been extended twice by the Trump administration, most recently through Jan. 31.
The pause has provided around 33 million borrowers with an interest-free respite from payments, preventing delinquency and subsequent default among those struggling to meet payments as the economy buckled.
Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, says kicking the can down the road will only help borrowers. “Borrowers pursuing [Public Service Loan Forgiveness] get an extra free month toward their total,” she says. “For borrowers in default pursuing loan rehabilitation, it’s another free month. For borrowers getting anxious about being able to afford payments when the waiver is lifted, it’s more time to determine their strategy.”
Despite the fact that the economy hasn’t recovered from the ongoing pandemic (the U.S. unemployment rate in November remained nearly twice as high as in February, at 6.7%, according to the most recent data from the Bureau of Labor Statistics), borrowers can expect their bills to arrive again and autopayments to resume after Jan. 31.
“I think that should be petrifying for everybody,” says Seth Frotman, executive director of the Student Borrower Protection Center. “There is tremendous concern about what’s happening in Washington across the board in terms of land mines and fires being left in the [presidential] transition, but for those of us who have watched this closely, the idea of tens of millions of borrowers’ accounts being turned on in a few short weeks is particularly troubling.”
Will the forbearance be extended again?
Borrowers should plan for the worst and hope for the best when it comes to expecting an additional extension once President-elect Joe Biden takes office, Mayotte says.
“To me it’s an indicator that if Congress hasn’t done anything by the time the waiver ends, Biden probably will do something after he is inaugurated. If they didn’t have that feeling there they wouldn’t have extended by just a month,” says Mayotte.
Biden could act as early as Jan. 20, Inauguration Day, but has not specifically said a forbearance extension is among his plans. Broad loan forgiveness is, but student loan policy experts say not to bank on that happening quickly, if at all.
Legislatively, efforts by House Democrats to extend the forbearance through Sept. 30, 2021, have stalled. Another relief bill could include longer extension of the forbearance; no detailed viable plan has yet emerged.
For now, expect payments to restart sometime after Jan. 31.
What can borrowers expect in the new year?
“The situation lends itself to confusion. I’m not sure how to get out of that,” says Scott Buchanan, executive director of Student Loan Servicing Alliance. “We try to be careful about our communication.”
When your payments restart, Buchanan says:
Expect your payment date to remain the same as before.
If you are already enrolled in autopay, you will receive a notice before a payment is debited.
Borrowers making payments for the first time should watch their inboxes and mailboxes for notice of their new billing date.
“What we’ve been working hard to do is to make this as seamless as possible for those people who are used to it,” Buchanan says, noting the loan servicing system is not one that was meant to turn off and on (and, potentially, off and on again).
What’s especially troubling about payments restarting en masse is the belief expressed by the Federal Student Aid office in a recent report that it and its “servicers will face a heavy burden in ‘converting’ millions of borrowers to active repayment at the same time, with a certain proportion becoming delinquent, at least initially.” The Department of Education did not respond with clarification.
Delinquency means you are late on a payment. At 90 days late, servicers notify credit reporting agencies. At 270 days late, the loan is in default and collections efforts begin, leading to consequences such as wage garnishment and seizure of tax refunds.
What to do if you can’t meet loan payments
“This very moment is when they should be looking at what their options are,” says Mayotte. “If they think they’ll need an income-driven plan, now is the time to get the paperwork in.”
If you think you may have difficulty repaying your debt, your best first option is to enroll in an income-driven repayment plan, which could help keep your payments manageable by setting the amount you pay at a portion of your income. It could even be zero if you’re unemployed or underemployed (earning under 150% of the poverty line).
Your next best option is an unemployment deferment if you’re out of work. It allows you to postpone repayment of federal student loans for up to 36 months if you’re receiving unemployment benefits or working part time while looking for full-time work. The catch is that, unlike the current payment pause, interest may accrue and be added (capitalized) on top of your total loan when you resume payments.
What to ask your servicer
You don’t have to wait to enroll in an income-driven repayment plan or an unemployment deferment, but your application won’t officially be processed until January, Buchanan says. What you can do now is talk to your servicer, gather your documents and get the ball rolling.
Buchanan advises borrowers to contact servicers (or use their websites) now and submit everything needed to change repayment plans or pause payments. You should receive confirmation via email or in your servicer portal that your enrollment is moving forward.
But it’s always a best practice to get anything you discuss over the phone in writing. Keep records of who you spoke with and the date.
When you call your servicer, ask about enrolling in an income-driven plan. There are four plans, but one that’s available to all federal direct loan borrowers is Revised Pay As You Earn, or REPAYE. It sets payments at 10% of your discretionary income and extends repayment to 20 or 25 years.
Parent PLUS borrowers should ask about income-contingent repayment, which caps payments at 20% of your discretionary income and extends repayment to 25 years.