Student loan repayments set to resume on January 1, 2021 – here’s what you need to know

For millions of student loan borrowers who received payment relief during the coronavirus pandemic, this interest-free break ends in January.

In March, Congress passed the original coronavirus stimulus package, known as the CARES Act, which included temporary relief in payments for federal student loan borrowers. The automatic payment break was supposed to expire on September 30, but was extended until December 31 under a decree signed by President Donald Trump.

Meanwhile, denials of yet another round of economic aid to Congress have stalled for months amid a resurgence of new COVID-19 cases from coast to coast. The lame session of Congress and a dying presidential administration further add to the lack of confidence many have about a new deal reached before January 1, 2021.

If you’re a federal student loan borrower, here’s what you need to know:

How should borrowers prepare for resumption of payments in January?

For those who have taken advantage of loan repayments suspended since March, experts advise contacting the manager first, either by logging into an online account or by calling to speak to a representative, to find out exactly when the first payment is. will be due. – and how much it will be.

“Be prepared that the payment can start automatically. You don’t want to know that you have a payment due and can’t afford to make the payment, ”said financial attorney Leslie Tayne.

Tayne is the founder and CEO of Tayne Law Group, PC, a New York-based law firm dedicated to debt management, debt resolution and bankruptcy alternatives.

The next step for borrowers is to assess their budget for January 2021, which could potentially be very different from before the pandemic. Business closures to help curb the spread of the virus have also devastated the U.S. economy and triggered record unemployment rate – leading many people to be still unemployed or to continue to receive a reduced income.

Since payments are expected to resume immediately after the holiday season, this is another reason to be proactive when it comes to financial planning.

“Take a really good look at your budget, and not just your budget today, but obviously that post-vacation budget. If you plan to spend on vacation and in January you plan to pay those bills, remember that your student loan payment may also be due, ”Tayne added.

An archive image shows a close-up of the front of the United States $ 100 bill bearing the portrait of American statesman, inventor and diplomat Benjamin Franklin. (Photo credit: PAUL J. RICHARDS / AFP via Getty Images)

What if borrowers can no longer pay their student loan repayments?

High unemployment rates in the country mean hundreds of thousands of Americans are likely still struggling to make ends meet, and this will only be made worse when student loan repayments resume in January.

A Pew Inquiry At the end of October, 58% of borrowers said it would be difficult to resume their student loan payments if they owed it the following month.

Experts advise borrowers to consider the variety of repayment options available for federal student loans. This includes an income-based repayment plan, which calculates the payment based on a specified percentage of the individual’s monthly income.

If a borrower has federal loans spread over multiple loans, they can also consolidate them into one loan with one interest rate. This could help lower the interest rate compared to the average of a borrower’s individual loans and simplify payment.

For Americans whose incomes have changed since their last payment or who are simply unsure of what options they have, it is advisable to contact the service agent and ask questions. Borrowers should be prepared with the information needed to change programs, which may include a recent pay stub or proof of unemployment.

“You have to be your own financial advocate because no one else will do it for you,” Tayne said.

Tayne added that no question is a dumb question.

“Say, ‘I really don’t understand how this applies to me. Is there another way to explain it to me so that I can understand? “Don’t be embarrassed to say I don’t understand,” she explained.

What if borrowers continued to repay their student loans this year?

For borrowers who were able to keep paying off their student loans this year, experts say the interest-free period makes it a great opportunity to pay off student debt. Some people may want to consider paying more on their loans before interest picks up, as the money can go even further now as it is applied directly to the principal balance.

Borrowers are also advised to check with their service agent to see what their new monthly payment will be. For those who prefer to use automatic payment, which was disabled at the start of the deferral period, they will need to reconfigure it so that they do not miss any payments.

Will the Biden administration cancel student loan debt or extend relief into 2021?

Throughout his campaign, President-elect Joe Biden has called for options to alleviate student loan debt and extend coronavirus relief into 2021.

It was not clear whether Trump plans to provide another extension before his term ends, or whether Biden will pursue a similar executive order once he takes office on January 20.

A spokesperson for the US Department of Education did not immediately return a request for comment, nor did Biden’s transition team.

Either way, Biden won’t take office for a few weeks after Jan. 1, so federal student loan borrowers should plan to make one or more payments at a minimum, regardless of what action he might take. as president.

“Don’t count on something like that. The same with Congress. You have a lot of new people who have new positions. It’s a new administration. They need the time to really look at this, ”Tayne said.

Tayne added that she would not expect any “dramatic change in student loans” in the first six months of 2021.

“Keep making your payments, keep trying to pay them back.” Focus on that, ”she said.

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About one in six American adults owe money on federal student loan debt. This week, Senate Minority Leader Chuck Schumer urged Biden to adopt a plan this would write off up to $ 50,000 in student debt per borrower under an executive branch. Schumer and Senator Elizabeth Warren, D-Mass., proposed the plan earlier this year.

Schumer said Biden could use existing executive power under the Higher Education Act to order the Education Department to “modify, compromise, waive or release” student loans. He estimated that it would offer a full discount to over 75% of borrowers and a partial discount to over 95%.

Following Schumer’s comments, a Biden official said Fox news that the president-elect calls for “immediate” action to cancel $ 10,000 in student loan debt for borrowers – but that action should take place in Congress.

Still, if some segments of the population benefit from a student loan discount in the future, Tayne argues that you could eventually end up paying in another area. The US Department of Education holds more than $ 1.4 trillion in student debt, according to a report by New York Times.

“At some point, if they forgo part of the student loans and it impacts government revenue, they have to compensate elsewhere,” Tayne said. “And that means other things will be taxed, and then that will trickle down to us.” You are potentially going to pay one way or another.

What are the useful resources to better understand student debt?

Federal government has a website dedicated to answers to questions related to student loan borrowers affected by the coronavirus pandemic, including topics such as income-tested repayment and private student loans.

There are a number of other online financial education resources, including the topic of student loans. Tayne recommends websites like The balance, Nerdwallet and The bank rate, and podcasts such as Stack benjamins, Allowing yourself, and Funding for popcorn.

“(Student loans) are there to help you and give you the foundation for a future. And if you look at it from a different perspective, you’ll learn to accept it, handle it, pay for it, and end, ”Tayne said.

This story was reported from Cincinnati.