In August, the Department of Education extended the student loan payment and interest freeze until January 31st, 2022.
For months, the Department of Education and the Biden administration has given every indication that borrowers should expect payments to resume as planned.
However, a return to repayment is far from a certainty. This week, the Education Department acknowledged that they were considering extending the freeze yet again.
Should borrowers plan on an additional extension coming?
The Biden Administration called the previous extension the “final” extension of the relief program. This was the first time it was been called final. Previous extensions left the door open for further help.
For this reason, borrowers should plan on payments resuming in February.
While the announcement that an additional extension is under consideration, it is far from a certainty. Borrowers should plan for the worst but advocate for the freeze to continue.
Sherpa Thought: The Department of Education announcing an extension is under consideration is irresponsible.
Inevitably, some borrowers will read the news of a possible extension and assume that it will happen. The Department of Education should have either granted an extension or been consistent that payments will actually restart in February.
Keeping things up in the air makes financial planning much more difficult for the millions of borrowers who will struggle once payments resume.
What about the Omicron Variant? Will it mean another extension?
The emergence of the Omicron Covid-19 variant has many borrowers wondering if additional student loan relief is on the way.
The Biden Administration recently announced a long list of measures that they will use to combat the latest variant. Unfortunately, further student loan relief is absent.
Many of the federal relief programs to help Americans weather the financial impact of Covid have already ended. The approach moving forward appears focused on keeping businesses up and running and the economy working. Given this strategy, additional student loan help seems unlikely.
The Politics of Another Extension: Covid-19 relief programs should be dictated by the science and economics of the situation. That said, it would be naive to ignore the fact that politics are likely part of the equation.
From a political perspective, any additional relief also seems unlikely. If Biden were to extend the student loan help from February to September, it would restart during the mid-term election cycle. The Democrats won’t want voters angry about a student loan restart as they head to the ballot box.
However, after the major setback to Biden’s Build Back Better legislation, Democrats may be desperate for some positive news and more likely to grant an extension.
The Strategy before the Restart
Borrowers looking to get the most out of the student loan relief should consider the following:
Ask for a Refund on Previous Payments
Federal student loan payments made during the 0% interest and payment freeze can be refunded.
I recently heard from one borrower who ran into a medical issue and received a refund of thousands of dollars.
The refund process is simple, and it is an excellent opportunity for borrowers to build up their emergency funds. Those that wish to attack their student debt can always make a large payment at the end of January.
The benefit of getting the refund is flexibility and whatever interest your savings account earns.
Many borrowers are making extra payments to maximize the 0% interest.
I think the ideal approach is to hold on to this cash until January. There isn’t any benefit to paying now versus paying later. At the very least, you can put that money in a high yield savings account earn some interest.
The one exception would be borrowers who might be tempted to use the cash for something unnecessary. If you see the money sitting in a savings account and it is burning a hole in your pocket, sending it to your lender to avoid temptation is a reasonable choice.
Get Ready Before February 2022
The repayment restart will be ugly. Loan servicers expect to receive more calls in a month than they typically receive in a year.
Borrowers that get questions answered ahead of time will avoid headaches.
Before payments resume, it is a good idea to know your repayment plan, how much you will be paying per month, and how you will make payments. If you are working towards forgiveness, take steps to track your progress before servicers get slammed.
What the Extensions Mean for Borrowers Chasing Forgiveness
Borrowers chasing student loan forgiveness are some of the biggest beneficiaries of the student loan payment freeze.
These borrowers haven’t been required to make payments for nearly two years, but the time still counts towards the various loan forgiveness programs, including PSLF.
These borrowers will want to make sure that they are ready to resume making payments right away. If you want to avoid any issues, calling your servicer before the restart is a good idea. Verify that you are enrolled in the repayment plan you want and that payments have been correctly calculated. Resolving these issues before the restart will help prevent delays and missed months.