Once again, student loan borrowers are getting another extension on the payment and interest freeze. The latest extension means borrowers may not have to make a federal student loan payment until the Summer of 2023.
Even though the administration had previously said that there were not going to be any further extensions, the one-time forgiveness lawsuits caused a shift in strategy.
Now that borrowers have yet another break before having to make a federal payment again, there are several ways to take advantage of the pause.
A Subtle but Important Policy Shift
While today’s announcement is one of many extensions, there is a significant change.
First starters, the date of the restart isn’t clear. If the Supreme Court rules on the one-time forgiveness, the pause will end. If the Supreme Court doesn’t rule by June 30, 2023, the pause will end on that date.
Under all of the previous payment pauses, repayment resumed immediately after the pause ended.
This time around, payments will resume 60 days after the pause ends. The most likely outcome is that the first required payments will start in September of 2023. Interest will receive the same treatment. Interest will start accruing once payments are required.
Why add 60 days to the end of the pause? The Biden administration has twice before said that an extension was the final extension and then chosen to extend again. At this point, calling it the final extension lacks finality.
By putting a 60-day buffer between the end of the pause and payments resuming, the restart should be less abrupt. It should also help borrowers transition back into repayment.
The Strategy before the Restart
Borrowers looking to get the most out of the final days of student loan relief should consider the following:
Ask for a Refund on Previous Payments
Federal student loan payments made during the 0% interest and payment freeze can be refunded.
I recently heard from one borrower who ran into a medical issue and received a refund of thousands of dollars.
The refund process is simple, and it is an excellent opportunity for borrowers to build up their emergency funds. Those that wish to attack their student debt can always make a large payment at the end of January.
The benefit of getting the refund is flexibility and whatever interest your savings account earns.
Hold off on Extra Payments
Many borrowers are making extra payments to maximize the 0% interest.
I think the ideal approach is to hold on to this cash until the restart. There isn’t any benefit to paying now versus paying later. At the very least, you can put that money in a high-yield savings account and earn some interest.
The one exception would be borrowers who might be tempted to use the cash for something unnecessary. If you see the money sitting in a savings account and it is burning a hole in your pocket, sending it to your lender to avoid temptation is a reasonable choice.
Get Ready for Summer 2023
The repayment restart will be ugly. Loan servicers expect to receive more calls in a month than they typically receive in a year.
Borrowers that get questions answered ahead of time will avoid headaches.
Before payments resume, it is a good idea to know your repayment plan, how much you will be paying per month, and how you will make payments. If you are working towards forgiveness, take steps to track your progress before servicers get slammed.
What the Extensions Mean for Borrowers Chasing Forgiveness
Borrowers chasing student loan forgiveness are some of the biggest beneficiaries of the student loan payment freeze.
These borrowers haven’t been required to make payments for over two years, but the time still counts towards the various loan forgiveness programs, including PSLF.
These borrowers will want to make sure that they are ready to resume making payments right away. If you want to avoid any issues, calling your servicer before the restart is a good idea. Verify that you are enrolled in the repayment plan you want and that payments have been correctly calculated. Resolving these issues before the restart will help prevent delays and missed months.
The Odds of Another Extension?
The federal student loan interest and payment pause has survived much longer than the other federal relief programs from Covid-19.
After numerous previous extensions, it might even seem like further relief is inevitable.
The big factor in determining whether or not another extension happens will be the status of the one-time forgiveness. If there is a final decision from the Supreme Court, payments are likely to resume… regardless of the outcome of the case.
However, as long as the case is pending, there is a good chance that the pause will continue to get extended.