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Make a plan to start paying off student loans

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In an effort to provide economic relief during the pandemic, the federal government suspended federal student loan payments last year with no accumulation of interest on loan balances. The moratorium has been extended several times, but now that the pandemic has subsided and the economy is recovering, the break is expected to expire on September 30. Loan officers planned to start advising borrowers in August when their payments would resume.

Is It Time To Refinance? In addition to notifying your loan manager, you may receive flyers or emails from private lenders offering to refinance your student loans at interest rates as low as 2.5%.

The best private loan deals are for borrowers with excellent credit or a co-signer. But even if you qualify for refinancing at a lower rate, you might want to wait. If President Biden keeps his promise to write off up to $ 10,000 in student loan debt, that will likely be limited to federal loans. And once you refinance a private loan, you cannot refinance a federal loan.

Another reason to wait: The suspension of federal student loan payments may be extended. Education Secretary Miguel Cardona said the Education Ministry is considering extending the waiver and the most likely scenario is that it will last until the end of 2021, expert Mark Kantrowitz said. in financial aid and author of How to appeal for more college financial aid. And even if the exemption is not extended, private student loan rates are expected to stay low until the end of 2022, he says, which means borrowers interested in refinancing have plenty of time to think about it. to their options.

If you still think it’s a good idea to refinance a private loan, read the fine print on any offer you are considering. Some plans offer low interest rates the first year and increase them later. But it’s important that you don’t refinance unless you’re sure you can afford the payments under the plan you’re considering. Private loan options for borrowers who are unemployed or in other economic difficulties are generally not as flexible as federal loans.

However, if you already have private student loans, there is no reason not to consider refinancing a loan with a lower rate. Be sure to compare the monthly payment with the total cost when you plan to consolidate or refinance student loans, Kantrowitz says. Just extending your payment period will lower your monthly payments, but you could be paying thousands of dollars more in interest by the time you pay off the loan.

To avoid interest rate hikes later, look for a low fixed rate rather than a variable rate. And if you can afford it, you can also consider a shorter repayment term. Even though your monthly payments may increase, you will save on interest and pay off your debt faster. Most lenders offer 10, 15 and 20 year loan repayment terms.

Options for Federal Loans. If your budget cannot handle your federal student loan payments, you may be eligible to reduce them by signing up for an income-based repayment plan (IDR). There are several IDR plans available through the Department of Education, but all of them base your monthly payments on your income. If you’ve already signed up for an income-oriented plan and your income has dropped significantly, you can also have your loan manager recertify your income and recalculate the payment, which could go down to $ 0. You can request an IDR plan at and select the plan for which you are eligible and which will give you the lowest monthly payment. You might end up paying more interest in the long run because you extend the repayment period, but after 20 years of payments, you might be eligible for the balance cancellation.

If you cannot afford to make payments at all, you may be eligible for a deferral or forbearance. There are two types of postponements: economic hardship and postponement of unemployment. You must be out of work to qualify for unemployment deferral, but you may be eligible for economic hardship if you receive federal or state government assistance, are a Peace Corps volunteer, work full time but earn less than or equal to the federal minimum wage, or you have income less than or equal to 150% of the poverty line for your family size and state (approximately $ 26,000 for a two-person household).

Both of these options, along with general forbearance, are available for up to three years, and you can use a combination of deferrals and forbearance for up to nine years. Interest may continue to accrue while payments are suspended, depending on the type of loan you have. A subsidized or Perkins loan, for example, will not earn interest during a forbearance or deferral. For other loans, interest accrued during the suspension of payments will likely be added to the loan balance at the end of the deferral or forbearance period.

Prepare to pay. Once you’ve decided on your path, calculate your payout. For federal loans, you can use the loan simulation tool at If you haven’t verified it already, make sure your loan officer has your current contact details. If you’ve signed up for automatic payments, you might need to confirm that your bank account information hasn’t changed.

Another step to consider before the federal suspension of payments ends is whether to request a refund for payments made after March 13, 2020. Any payment you made during the suspension of payments can be refunded. is useful if you need the money or think you will be in the future. Contact your loan officer before September 30. Call centers can get busy, so you may get better results using your lender’s online contact forms.

Finally, beware of fraud. The Education Department says student loan borrowers have received phone calls, emails, letters and texts warning them that the suspension program will end soon and offering debt relief. Usually, companies offering this type of service do not offer any relief, and some are con artists seeking to take advantage of vulnerable borrowers.

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