Prepare to Start Repaying Federal Student Loans

Here's what you should know before the pause on federal student loans ends.

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Now that the moratorium on federal student loan payments has been extended one final, final time, borrowers need to start preparing for the restart in five months.

Loan repayments, including the interest, have been on hold for borrowers with federal student loans since March 2020, when the pandemic took hold. The same with collections on defaulted loans.

The moratorium, which has been extended several times, was set to expire at the end of September. But the Department of Education has now extended it one last time through Jan. 31, 2022.

The repayment pause applies to about $1.4 trillion in federal student debt owed by about 43 million borrowers, Mark Kantrowitz, a student loan expert and author of “How to Appeal for More College Financial Aid” said in an interview.

Keep in mind that the monthly loan payments—the amount owed, the interest rate—will be the same in Feb. as they were before the pandemic. The government just “put the loans in hibernation,” Kantrowitz said.

Federal loans, including the Stafford, Parent PLUS, and consolidation loans make up more than 90% of student loans outstanding, and they remain eligible for the final payment suspension and interest freeze provided they are owned by the Education Department.

Borrowers with private loans from banks and other financial institutions can't take advantage of the extended moratorium, although some private lenders and loan servicing companies have offered some flexibility to borrowers who asked to suspend their payments as the pandemic worsened.

Here' some advice from financial aid experts on how borrowers can prepare for the payment restart on Feb. 1, 2022:

  1. Check that the loan servicer who monitors your loan has up-to-date contact information so you will receive notices of payment due dates, said Kevin Walker, publisher of the CollegeFinance.com website.

    Right now, the industry is going through a shakeout, which could lead to processing problems for borrowers. An estimated 10 million borrowers will have a new loan servicer next year because two companies—Granite State and FedLoan Servicing—have said they will not renew their servicing contracts when they expire at the end of this year.

    If your servicing agent is changing, save a copy of your loan information, including the current balance and monthly payment amounts, so there's a paper trail in case there's a mix-up during the transfer to a new servicing firm, Kantrowitz said. Check your servicing company's website or the Department of Education at StudentAid.gov.
  2. Borrowers signed up for automatic payment plans, where money is automatically transferred from their bank to the loan servicer, should confirm that their account information has not changed. And of course, Walker said, make sure there's enough money in the account once automatic payments resume.
  3. Now is a good time to review your budget to free up every dollar possible over the next five months to start making student loan payments again. Build or bulk up your emergency fund to ease the payment transition, Kantrowitz said.
  4. Budgeting works great if you have some income. But what if you don't have a job come late January? “Contact your loan servicer to explore some options, such as seeking economic hardship or unemployment deferment status, or switching to an income-driven repayment plan, Kantrowitz said.
  5. For those who can, Walker suggests continuing to pay your federal student loans—even paying extra principal—during the payment and interest holiday because it will shorten the remaining balance once everything gets back to normal.
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