Federal student loan repayments resume May 1 after more than two years of COVID-19 emergency forbearance. However, 93% of student borrowers are not ready to resume their payments, according to a February survey conducted by the Student Debt Crisis Center (SDCC).
More than a quarter (27%) of the 23,532 student borrowers surveyed said they would never be financially ready to make payments again. Additionally, 85% said they currently rely on payment break financial relief.
If you’re among the vast majority of student borrowers who aren’t ready to start payments again in two months, keep reading to learn. how to prepare yourself financially. One strategy is to refinance your student loans at a lower interest rate. You can visit Credible to compare student loan refinance rates for free without affecting your credit score.
Student borrowers say inflation will make it harder to resume payments
With inflation and Consumer debt at all-time highthe vast majority (92%) of full-time student borrowers fear that rising prices will make it harder to meet their monthly payments in May, SDCC reports.
“Our results show that the ongoing pandemic, combined with unprecedented inflation, are huge headwinds for borrowers who overall are not ready to resume payments, are struggling to meet their basic base and are confused about their options moving forward,” said SDCC President Natalia Abrams. .
Inflation has risen 9% since the start of the coronavirus pandemic in March 2020, according to consumer price index (CPI). So while your student loan repayments may be the same as before the forbearance period, rising prices for other goods and services may make it more difficult to meet your monthly payments.
One way to reduce your student loan repayments is to consolidate into a private loan at a lower interest rate. Keep in mind that refinancing your federal loans will make you ineligible for government benefits, such as income-contingent repayment (IDR) plans and some student loan forgiveness programs. You can learn more about refinancing student loans on Credible to decide if this strategy is right for you.
How Borrowers Can Prepare to Resume Student Loan Payments
A third of borrowers surveyed by SDCC said they had cut back on basic necessities like food, rent and healthcare in preparation for the end of forbearance in May. However, there are several other ways to prepare for student loan repayment:
Learn about each strategy in the sections below.
During the student loan payment pause period, millions of borrowers had their loan balances transferred to a new repairer. Worryingly, more than half of borrowers surveyed say their student loan officer has not contacted them with details about when their payments will resume.
Contact your loan manager to get a clear idea of ââyour payment due date, monthly payment amount, remaining loan balance and current interest rate. Your loan repayment terms must be the same as before the start of the forbearance period. However, you may need to re-enroll in Autopay to avoid missing a payment in May.
If you’re unhappy with your current repayment terms, such as your interest rate or monthly payments, you may want to consider refinancing. You can view your student loan refinance offers on Credible for free with a flexible credit application.
Federal student borrowers may be eligible to enroll in an IDR plan to limit their monthly payments to between 10% and 20% of their disposable income. The Ministry of Education offers four IDR plansdepending on the type of student loan you have:
- Revised Pay As You Earn Repayment Plan (REPAYE Plan)
- Pay As You Earn Reimbursement Plan (PAYE Plan)
- Income Based Reimbursement Plan (IBR Plan)
- Income Contingent Repayment Plan (ICR Plan)
How much you pay each month depends on the type of plan you choose, as well as your household income and family size. Check if you are eligible for income-contingent reimbursement by logging into your account at the Federal Student Aid (FSA) website.
If IDR plans are not enough to save you from delinquency, you might consider defer your federal student loans. It is important to note that interest may accrue on your loans while you are in deferment, which will increase the overall cost of borrowing.
You may be eligible to defer your federal student loans if you are unemployed or meet economic hardship standards. It is also possible to defer your student loan repayments while you are still in school.
As a presidential candidate, Joe Biden campaigned on forgiveness of $10,000 in student loan debt per borrower. And while the president has yet to enact widespread student loan relief, his administration has provided billions of dollars in student loan relief through the following programs:
- Public Service Loan Cancellation Program (PSLF): The Biden administration announced significant changes to the PSLF program in October 2021 that made it easier for applicants to meet eligibility requirements. As a result, approximately 70,000 public servants received $5 billion worth of student loan forgiveness under this program.
- Closed School Release Program or Borrower Defense: If your college engaged in misconduct during your enrollment or went into default, then you may be eligible to have your federal student loan debt forgiven. The Department of Education has canceled about $3.2 billion in debt through these programs since President Biden took office.
- Total and Permanent Disability (TPD) Leave Program: Borrowers with disabilities may be able to have their federal student loan forgiven. Under the Biden administration, more than 400,000 borrowers qualified for TPD discharges for a total of $7 billion in student loan relief.
These federal student loan forgiveness programs have strict eligibility requirements, which means that many borrowers will not qualify. Also, these programs only apply to federal student loans, not private student loans.
It may be possible to lower your monthly payments, pay off your debts more quickly, and save money over time by refinancing your student loans at a lower interest rate. Student loan refinance rates are currently near record lows, according to data from Crediblewhich means some borrowers may be able to save more money than ever before.
The interest rate you qualify for depends on the amount and term of the loan, as well as your credit score. Well-qualified applicants with good credit scores will qualify for the best possible student loan refinance deals. On the other hand, borrowers with bad credit may need refinance their student loans with a co-signer to meet the eligibility requirements.
That being said, refinancing student loans is not good for everyone. If you plan to take advantage of federal student loan benefits, such as student loan forgiveness programs, refinancing would make you ineligible. But if you don’t plan to use federal protections or already have private student loan debt, refinancing may be a good option.
You can compare student loan interest rates from private lenders in the table below. Then you can use a Credible’s Student Loan Refinance Calculator decide if this strategy is right for your financial situation.
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