During Dec. 2021, many of those with federal student loans were preparing to resume payments in Jan. 2022 after a nearly two-year hiatus. On Dec. 22, President Biden provided a much-anticipated reprieve, extending the pause on student loan repayments by an additional 90 days to May 1 2022.1 What does this extension mean for loan borrowers?
Pause Allows for Omicron Assessment
Since March 2020, holders of certain federal student loans (like Stafford, Plus and Parent PLUS loans) have had their loans suspended, interest-free, during the payment moratorium. Federal agencies have also stopped collection actions on defaulted federal loans. But while student loan borrowers were not required to make payments, they were allowed to make them. The zero percent interest rate provided an opportunity to lower loan balances for some.
In extending this payment pause through May 1, 2022, the Biden administration stated that it intends to assess the effect of the Omicron variant on unemployment rates, inflation, and other factors that may impact borrowers' ability to repay their loans. The administration also announced plans to work with borrowers for a smooth transition into repayment starting May 2022, expanding deferral and forbearance options that may help borrowers avoid default.
Impact of the Student Loan Repayment Pause
Estimates are that the repayment pause, including this extension, might allow 41 million borrowers to save up to a total of $5 billion per month.2 For borrowers who have suffered financial hardship during the pandemic, this reprieve may provide an opportunity to get caught up on other bills or set aside money to begin making payments once they resume.
Preparing for Repayment to Begin
If you enjoyed life without student loan payments, this additional 90-day pause might be a good time to prepare for repayment. Whether this means putting a line item in your budget and transferring the payment amount to savings or looking into your forgiveness or forbearance options, taking action now may help you manage any stress or pressure once payments begin.
More than 16 million federal student loans recently underwent a transfer to new loan servicers, so if you have not set up an online account with your new servicer, doing this before you have to make payments may also smooth the transition.3
The opinions voiced in this material are for educational and general information and are not intended to provide specific advice or recommendations for any individual.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess
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