Things are about to get a little weird with your student loans.
For much of 2020, millions of student loan borrowers have not had to repay their federal student loans because of emergency pandemic relief. Congress passed the CARES Act in April in the wake of the rapid economic collapse brought about by the Covid-19 pandemic. Although the implementation of the CARES Act has been messy, the CARES Act provided substantial relief to student loan borrowers. The stimulus bill suspended payments, interest, and collections on all government-held federal student loans through September 30, 2020. President Trump subsequently extended that relief to December 31 through executive action.
Democrats have been pushing to further extend the student loan moratorium well into 2021 as part of larger stimulus negotiations, but Congress has been at an impasse for months. As president, Biden could enact an extension on his own without Congress via executive action, much as President Trump did earlier this year. But Biden would not be sworn in until January 20, 2021, and that is the soonest he would be able to issue any sort of extension through an executive order. Biden has not expressly confirmed what he will do.
Meanwhile, student loan servicers are required under the CARES Act to send multiple notifications to student loan borrowers in the coming weeks that their student loans are entering repayment this January. Borrowers will need to start budgeting for payments, applying or re-certifying for income-driven repayment plans, and considering whether to request hardship deferments or forbearances. Servicers will start generating student loan bills within the first week or two of January, with anticipated billing due dates later that month, or in early February.
President Trump or Education Secretary Betsy DeVos could try to bridge the gap between December 31, 2020 and January 20, 2021 by further extending the CARES Act’s moratorium on student loan payments and interest for another month. But so far, neither has indicated that they would do that.
Thus, student loan borrowers will be entering a bizarre period of high uncertainty. They’ll need to start preparing for repayment, and will likely get billed in the coming weeks for the first time in nearly 10 months. Collections activities on defaulted federal student loans will also resume. And depending on what happens on or shortly after January 20, borrowers may or may not wind up having to actually make payments on their student loans.
Here’s what borrowers can do to navigate the coming uncertainty:
- Assume you will have to start paying your student loans again in January, and budget accordingly. Until and unless the law changes through Congressional legislation or executive action, there is no ambiguity that federal student loans will become due again after December 31.
- If you cannot afford your usual monthly student loan payments, consider applying for an income-driven repayment plan before December 31. Income-driven repayment plans can provide affordable monthly payments for borrowers based on their taxable income and family size. But there likely is going to be a large volume of people applying at once. So it may be better to get your application in sooner rather than later, to avoid potential delays.
- If you were previously in an income-driven repayment plan, you may have to re-certify with updated income information before December 31. Contact your student loan servicer for details, including required deadlines. Some servicers have extended their deadlines for re-certifying.
- If you were previously in an income-driven repayment plan, and your prior payments were based on higher income, consider requesting a recalculation of your payments before December 31. Borrowers have a right under federal law to request that their income-driven repayment plan amount be recalculated at any point due to changed circumstances, such as a reduction in income.
- If you are in default on federal student loans, explore default resolution options prior to December 31. Federal student loan borrowers may have options to get out of default, such as through loan rehabilitation or federal Direct loan consolidation. Once collection efforts on federal student loans can resume after December 31, the U.S. Department of Education can again pursue wage garnishments, as well as offsets of Social Security benefits and seizure of federal tax refunds.
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