Will you be able to defer your federal student loans so you can pay them off faster? Be sure to read this to find out how to qualify.
How will you find out if your COV ID deferment has been approved? If you’re like most of us, you’ll have to wait for a letter that’s as long as the original deferment letter that you received in the mail! The question is, how long will this take?
The COVID-19 Federal Student Loan Deferment Program, created in 2012, provides qualified borrowers with a deferment from repayment of their federal student loans for up to two years. While interest continues to accrue on the loan, the borrower is eligible to receive a monthly payment of $0.00.
The past year was marked by a seemingly endless list of problems, but there was at least one small relief: a pause in federal student loan payments. However, the deferral period for federal COVID-19 student loans is ending and payments will resume shortly. For federal borrowers with administrative deferrals, student loans have become something of an afterthought. Many borrowers are also in a very different financial position than before the pandemic. Student loan borrowers are therefore wondering exactly what will happen to their income-driven repayment (IDR) plan. Here’s what you need to know if you’re considering resuming your payments after your deferment for your federal student loan expires.
What is the deferral period for student loans?
The freeze on repayments and interest rates for federal student loans has been repeatedly extended. The suspension was first applied on 13. March 2020 and has since been extended by legislative and executive orders. When are student loans renewed? The deferral of federal student loans expires on the 30th. September 2021. While this could happen, a further extension of the payment and interest pause is unlikely. Borrowers should prepare to resume payments next month, in October 2021.
2 Considerations for lifting the payment freeze
Even though it will only be a few months before you resume your payments, you should start thinking about your student loans now. Finally, at the end of the deferral period, up to 18 months had elapsed during which no mandatory payments had been made. Resuming payments can be a financial shock, as many borrowers have used the freeze to pay off other debts or build up savings for emergencies. Here are some student loan related points that you should keep in mind.
1. Update your contact information at your local credit bureau
Seriously, don’t sleep during this step. When payments resume, borrowers and their agents will be angry. Expect some confusion at first about when payments are due and when reaffirmation of income is required. In addition, contracts with some state-owned credit management companies expire in December, adding to the chaos as borrowers’ accounts are transferred to new credit management companies.
Update your contact information with the loan servicer as soon as possible. If you have moved, changed your phone number or created a new email address during the suspension of payments, you must provide updated information to the loan servicer. This ensures that important information about student loans is sent directly to you. The Department of Education stipulates that you must receive a bill or notice at least 21 days before the due date. But the guidance on reaffirmation of income for IDR plans is not clear. You are not required to recertify until the end of the deferral period, even if your first recertification date was before the 30th day of the deferral period. September.
However, it is not clear when borrowers will be required to make a new statement. Instead, StudentAid.gov says: …your recertification date has been pushed back from the original recertification date. You will be notified of the new recertification date prior to the recertification deadline. We will keep you informed, but your loan officer will have detailed information specific to your loans.
2. Recertification time frame based on your income
Start by assessing whether your financial situation will improve or worsen after your deferment of federal student loans expires. Then reformulate your income accordingly. What does that mean? As mentioned above, you do not have to prove your income until the end of the administrative deferment. But you could do it if you benefit from it over the next 12 months. Suppose your hours (and income) were reduced due to the pandemic, but your salary will return to normal in the coming months. Remember, RDI payments are based on a percentage of your discretionary income.
Therefore, it is in your best interest to recertify early while your income is low. However, if your income has increased, you should wait as long as possible before applying for recertification. After recertification, your monthly payment will be recalculated based on your increased income.
Deferred repayment options for federal student loans
At the end of your federal student loan deferment, you must decide how you want to proceed with repaying your loan. Here are some options to explore.
Option 1: Do nothing and let payments resume
If you do nothing, your repayments will start on the same repayment schedule as before the deferral. Automatic payments will resume and the payment amount will be the same as before. You must continue to confirm your income on the new required confirmation date. However, with this approach, you can get a few extra months of lower payments if your income increases during a pandemic.
Option 2: Keep your IDR plan and certify your income early
You can recalculate your monthly payment by reporting your income earlier than expected. This is particularly beneficial for borrowers who have lost their jobs or become unemployed, as their income is likely to be much lower than it will be in a few months. For example, you must demonstrate your financial situation. For example, a letter of resignation or proof of unemployment benefits. But if you need to be unemployed after a pandemic, you can take advantage now and get a discount on your student loan payments for the next year.
This approach can also be beneficial for borrowers who have a child at the time of suspension, as family size is another important factor in determining your IDR payment. And don’t worry about early recertification, because you don’t have to start paying until the suspension period is over.
Option 3: Change to an alternative repayment plan
If you fear that you will not be able to meet the monthly payments under your current plan, you may want to consider alternative repayment plans. For example, suppose you currently have an income-based repayment (IBR) plan where 15% of your discretionary income is used to determine your monthly payment. If you switch to a Pay As You Earn (PAYE) scheme, your payment will only be based on 10% of your earnings. Borrowers currently on a standard, tiered or extended plan may consider applying for a deferral or an additional grace period if they are unable to keep up with payments. If you find yourself in this situation, you will benefit more from participating in the IDT. You get credit for canceling your loan, and your payments can be as low as $0 per month.
Option 4: Refinancing if you intend to repay your student debt in full
Refinance lenders are now offering attractive interest rates and generous repayment bonuses. If you have private student loans, you should definitely look for a better interest rate. However, if you have federal student loans, you should weigh the pros and cons of refinancing before proceeding. If you refinance, you will lose access to federal borrower protections (such as deferrals and moratoriums) and will not be able to participate in loan forgiveness programs or flexible IDR plans. However, if you plan to pay off your federal student loans in full, refinancing is a great option to get rid of your student debt faster.
Make a plan before resuming payments
Don’t wait until October to make your federal student loan repayment plan. Be proactive and contact the lender directly to answer any remaining questions, or contact us. If you would like more individualized advice that meets your financial and personal goals, make an appointment for a one-hour consultation. Our student debt experts can help you choose the right time to renew your degree and apply a number of other repayment strategies that can save you money on your student loans. A plan for a student loan Refinance your student loan and receive a bonus in 2021.
Frequently Asked Questions
Are they going to extend student loan forbearance?
If you’re need to defer student loans because you’re unemployed, you can now qualify for up to 12 months of forbearance. This is a significant improvement over the previous standard of six months (which was reduced by half due to the economy), which was limited to students earning less than $31,000 per year. COVID-19 Federal Student Loan Deferment is currently set to expire on March 31, 2019. If you’re a borrower who owes $50,000 or more in federal student loans, you’re eligible for COVID-19. COVID-19 will help you survive financially while you take the time to pursue a career or education. For borrowers who qualify, COVID-19 will help you defer your student loans and prevent you from having to start repaying your loans right away.
What happens if you keep deferring student loans?
Deferment is an option that allows you to postpone paying back federal student loans. In the past, deferment usually ended after a period of five to seven years. But thanks to President Obama’s recent executive order, the time period has been increased to an unprecedented 10 years. Now that deferment is a far more attractive option than ever, many parents are wondering if it’s worth it to delay their kids’ college education. If you are a college student in good financial standing, you may still be eligible to defer some or all of your education loans. The interest that accrues on these loans accrues at a lower rate, have a longer repayment period, and may be eliminated altogether.
How many times can you defer federal student loans?
Every year thousands of students of all ages are forced to take out student loans to pay for school. Having spent a few years in college, you may have enjoyed the opportunity to pay for your education over time. If you have federal Direct Loans, you can defer your payments for up to three years. That’s right, you can postpone having to pay back a portion of your loans. Students have until October 1, 2016 to file for Federal student loan deferment under a COVID-19 form.
