What to Do When Your Student Loans Unpause: Tips & Resources from The College Investor
Since the passing of the CARES Act in March 2020, federal student loan payments have been on pause. Borrowers have not been required to make payments toward their outstanding federal student loan balance, and their balance has not accrued interest during the pause.
Why the pause?
This forbearance period was established to help relieve some of the financial pressure millions of Americans faced during the COVID-19 pandemic. The pause was originally set to expire in September 2020, but – over a period of several extensions – extended it through April 30th, 2022.
With that date right around the corner, we want to help you feel prepared to start making payments again, or for the first time. We chatted with Robert Farrington, America’s Millennial Money & Student Debt Expert®, from The College Investor about this student loan unpause and how to stay proactive.
What’s going to happen when student loans unpause?
This is the million-dollar question. For almost two years now, millions of Americans have not paid a single dime toward their federal student loan debt. No principal payments, no interest payments, nothing. Moreover, borrowers who were in default prior to the pandemic have not received a phone call, text, or email from a collections agency since March 2020.
This will end on May 1, 2022. Despite the advance warning, I think resuming student loan payments is going to be a shock to the system for many. Covid has shifted our mindsets, our understanding of time versus money, and the American economy at large. So, the truth is, I can’t say what is going to happen when student loans unpause — we will all just have to wait and see.
How can students find out how and when to make payments?
My first recommendation is to reconnect with your loan servicer sooner rather than later. Get clarity on what your exact bill will be, the breakdown of interest and principal, and what day it is due each month. Also, make sure your loan servicer has your current information: name, address, email, occupation, etc. Since it’s been almost two years, there’s a good chance this information is outdated.
If you don’t know where to start, log into StudentAid.gov and select “My Aid”. This will provide a list of your student loans as well as contact information for your loan servicer.
IMPORTANT: All pre-existing auto-payments have been canceled. So if you had autopay set up for your student loans in the past, this will not automatically resume come May 1, 2022. You will need to log in and set it up for a second time.
What can students do now to prepare to make payments in January and beyond?
Ideally, borrowers have set aside — mentally at least — their regular student loan payment. If you lost your job or got a pay cut, the best approach is to adjust other expenses accordingly while student loans are still paused.
That said, if you haven’t done this, it’s not too late! Track down the exact amount and date your first payment is due and work out how it fits into your current budget. If need be, pick up a freelance gig or side hustle if things will be tight. Whatever you do, don’t miss your first payment.
If you don’t think you can swing it, ask your servicer about an income-driven plan so that your monthly bill is appropriate for your current income. If you are unemployed, tell your servicer now in order to secure an affordable, and possibly $0 monthly bill.
What if students can’t repay their loans right away and they miss a payment?
One of the worst financial mistakes you can make is to miss a student loan payment. I say that because a student loan default can be crippling to your financial future. The government has all the power in the world to collect what you owe them — whether that means wage garnishment, tax return offsets, and several other tricks up their sleeve. But if you really, really can’t afford to make payments, my best advice to you is to get on the phone as soon as possible to formulate a solution with your servicer.
If that doesn’t work, you can apply for a hardship or unemployment deferment. This will give you a few extra months to make your payment, but don’t forget that interest will accrue during this time.
One missed payment isn’t going to get you sent to collections — but it will hurt your credit. If you miss your first payment in May, you need to get in contact with your loan servicer and get back on track as soon as possible.
What can students do if they need more time to make payments?
If you need more time to make your first payment, there is talk about giving a grace period – but that’s not finalized yet. As such, you need to look at existing options, such as deferment, forbearance, or simply switching to an income-driven repayment plan that you can afford.
What if students have private student loans too?
Not much has changed in the last 20 months for borrowers with private student loans. That’s because they never went on pause! A few lenders offered a deferment or forbearance period but it wasn’t for 20 months so most private borrowers have been in the practice of paying their student loans each month just like before the pandemic.
That said, student loan interest rates are still near historical lows. If you have a private loan and haven’t checked your interest rate lately, you could potentially save money or lower your monthly payment by refinancing.
How will this unpause affect a student’s 2020 tax refund?
Great question. Student loan borrowers should expect a smaller tax refund this year for a variety of reasons. For example, student loan borrowers won’t receive the typical student loan interest deduction because they obviously didn’t pay any interest in 2021! And any borrowers who claimed the monthly Advance Child Tax Credit are unlikely to see a large tax credit when they file since this was credited earlier in the year.
This is important to keep in mind as student loan payments are due again because many borrowers might be expecting a savings cushion in the form of a tax return — but that is unlikely to transpire in 2022.
If you could give one piece of advice to students who are navigating the next few months, what would it be?
Get organized. It’s been almost two years since borrowers have had to make loan payments. Do not procrastinate: Spend the next few weeks going through your expenses, your income, where you can save, and where you can make adjustments. This requires transparency and honesty. If you don’t open your credit card statement and bank account and acknowledge where your money is going, paying down student loans will be a lifelong struggle. As someone who struggled with this myself, I sympathize and am here to tell you that honestly, dedication and transparency are key to your financial success.
Anything else you wish to say?
There will likely be a lot of chaos and disorganization as we approach the first payments being due in May 2022. However, you can avoid that by getting organized early (right now), and being ready to make your first payment. If you’re able to, use online portals and resources so that you can avoid call centers (which will likely be overwhelmed with calls). And if you do have to call for assistance, do so now rather than waiting until right before your payment is due.
Robert Farrington | The College Investor
Robert Farrington is America’s Millennial Money & Student Debt Expert®. In 2008, he was determined to pay off his student loans and start investing to build wealth for his future. However, he couldn’t find reliable resources to help him. After navigating the confusing world of debt and investing for himself, he launched The College Investor in 2009 to help others learn what he’d discovered.
Today, The College Investor helps millions of people pay down their debt, create budgets and build investment portfolios. You can find our content on the website, through podcasts, YouTube, TikTok, and social media.