In August 2021, when the Department of Education extended the student loan payment and interest freeze until January 31st, 2022, they made it clear that it was a “final” extension.
Now that the student loan relief has been extended until May 2022, it is reasonable to wonder how many more extensions might happen. Notably, the most recent extension did not say it was final.
Should borrowers plan on an additional extension coming?
When it comes to planning, borrowers should assume that repayment will begin as scheduled.
That said, it is reasonable to consider the possibility that more help could come. The initial relief was set to end in 2020, and we have seen many extensions since then.
For borrowers, this means planning for the worst and hoping for the best.
The Strategy before the Restart
Borrowers looking to get the most out of the 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 May. 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 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 Before May 2022
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 about more Covid variants? Could they mean another extension?
After the Delta and Omicron variants caused a massive spike in Covid cases, the emergence of yet another variety is a possibility.
That said, even the experts don’t know what the Covid situation will look like in May. Things could be significantly better, or we could be facing yet another spike.
Borrowers hoping for an extension may want to consider the political factors.
The Politics of Another Extension
The student loan relief has proven to be incredibly popular and not very controversial.
However, ending the help might upset large numbers of voters. With the midterm elections coming in the fall of 2022, politicians don’t want to get the blame for the student loan payment restart.
If Covid or economic conditions justify a continued payment and interest freeze, it would not be surprising to see Democrats in Congress push Biden for yet another extension.
It is also worth noting that the restart will almost certainly be a mess. This means many student loan borrowers will be justifiably angry about the restart. Politicians don’t want voters angry at them on the eve of an election.
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 nearly 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.