A little over three months. That’s how much time remains before some 41 million federal borrowers have to start repaying their loans again.
The federal government froze student loan repayments at the start of the pandemic, and it has extended that freeze several times since, most recently just before Christmas.
The US Department of Education said payments would resume on May 1. What should borrowers do to prepare? Betsy Mayotte has ideas. She is the founder of The Institute of Student Loan Advisors, a non-profit organization that provides free advice to borrowers. Here are his seven tips for borrowers ahead of the May 1 restart:
1. Familiarize yourself with (or rediscover) your loans.
“Despite the fact that the break has been extended, borrowers should take this opportunity to put their affairs in order,” said Mayotte.
Get answers to the following questions: How much are your balance(s)? What kind of loans do you have? Which company is your repairer? What are your interest rates?
For federal loans, go to www.studentaid.gov to find this information.
The more you know about your loans, the better you will be able to determine how to manage them. And knowing which company is managing your loans is very important because some managers have changed during the pandemic.
2. Make sure your contact information is up to date.
Make sure your loan officers have your correct contact information: email, mailing address, and phone number. When the payment pause ends, Mayotte says, they’ll send you some really important information that you’ll want to see.
3. Calculate what your monthly payment will be.
Your student loan account with your servicing agent should show a monthly payment. If you cannot access this information online, you can also call your repairer. Once you have an idea of your monthly payment, ask yourself: is it affordable? If not, there are several payment options available. (More info below!)
4. If you can afford it, start paying before the break ends.
The pause on student loan repayments has also set loan interest rates at 0%. It’s a gift ! This means that all payments made during the break go directly to principal – not interest. For borrowers who might be in a comfortable financial position, Mayotte says now is a great time to pay off as much of that debt as possible.
5. If you don’t think you can pay your monthly bill, research additional payment options.
The Federal Student Loans Program offers a few options for lowering your monthly payment. Some are based on your balance, others are based on your earnings.
“Fortunately, there are some really good tools to help borrowers determine not only what their payment will be under each of these plans, but more importantly, how much they will pay in the long term under each of these plans.” said Mayotte.
The Loan Simulator, on the Department of Education’s website, and the Student Loan Calculator, developed by the Institute of Student Loan Advisors, are two tools that can help you determine which payment plan is right for you.
If you are pursuing loan forgiveness programs, such as the Civil Service Loan Forgiveness, both calculators will also indicate whether these programs will actually be profitable for you.
6. Beware of scams.
As repayment draws near, Mayotte says she’s starting to see more student loan scams on social media, through email, and through calls and voicemails.
If someone contacts you asking for your student loan account PIN or password, that’s a huge red flag. No legitimate student loan company will ever ask you for this. In fact, under the STOP law, it is illegal for servicers to use personal information to access borrower assistance records. anyone who is authorized to access this data – a loan officer, your university, the department of education – will have their own credentials and will not need to ask for the borrower’s PIN or password. But that doesn’t stop scammers from asking.
If they promise you forgiveness upfront without really knowing anything about your situation, that’s another big red flag.
7. Don’t rely on general loan forgiveness.
President Biden has signaled that he is unlikely to use his executive power to cancel student debt, although his administration at canceled some debts through pre-existing forgiveness programs. Mayotte says that if you are not enrolled in an existing loan forgiveness program, do not count on a forgiveness policy.
“Here’s the problem: student loans aren’t the problem,” she explains. “The problem is the cost of higher education. Forgiving student loans is like figuring out how to minimize bleeding, rather than figuring out how to prevent injury in the first place.”