The Biden administration recently extended the federal student loan repayment moratorium until May 1, 2022, giving eligible borrowers an additional 90 days to prepare for repayment. The decision comes after prominent Democrats “strongly” urged the president to introduce additional student loan forgiveness amid the economic impact of the omicron variable.
“Now, while getting our jobs back is one of the most powerful jobs ever… we know that millions of student borrowers are still dealing with the effects of the pandemic and need more time before payments resume,” President Joe Biden said in a statement.
During the extended forbearance period, payments are held and interest does not accrue on select federal student loans. While this is welcome news among borrowers who are not ready to resume repayments, there are a few things to know about extending your student loan tolerance.
Keep reading to learn more about student loan repayment pauses, including alternative debt repayment options such as refinancing. You can view the estimated student loan refinancing offers on Credible for free without affecting your credit score.
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1. Not all student loans qualify for relief
About 41 million Americans have taken advantage of the federal student loan tenure, according to the White House. But current debt forgiveness procedures do not cover borrowers with the following types of student loans:
- Federal Family Education Loans (FFELs)
- Federal Perkins Loans Not Owned by the Department of Education
- Private Student Loans
From a perspective perspective, private loans account for 8.4% of total student loan debt, according to the Education Data Initiative. Private student loan borrowers may be eligible to sign up for forbearance through the lender, but interest typically accrues during these deferral periods—this results in a growth in the principal loan balance. Alternatively, borrowers with private loans can consider refinancing while interest rates are at record low levels.
The average interest rate at a 10-year low at a flat rate fell to 3.33% for well-qualified borrowers during the week of December 13, according to Credibility. This is the lowest fixed interest rate since Credible began collecting this data.
Refinancing at a lower interest rate can help you reduce your monthly payments, pay off your debt faster, or save money on interest over the life of the loan. You can start the application process by comparing student loan refinancing rates across several lenders on Credible.
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2. The payment pause period counts toward eligible PSLF payments
Taking on a student loan has an additional advantage for borrowers who plan to apply for the Public Service Loan Forgiveness (PSLF) program. Under this program, public servants who work for eligible employers are eligible for the remainder of their federal student loan debt after 120 qualifying payments are made.
The months during which payments are held count toward the 120 required payments, which means PSLF applicants will be about to receive a tolerance of about two years by the time coronavirus assistance ends in May 2022.
The Department of Education notes that if PSLF borrowers make additional payments toward their debt during the forbearance period, they will not qualify for the PSLF sooner. This means that it is better not to make additional payments in order to maximize the total amount of the tolerance.
Student debtors start receiving $2 billion in forgiveness under PSLF
3. Pause collection and withhold wages
The Department of Education has suspended collection activity for borrowers whose student loans were in default prior to the pandemic. During the forbearance period, the federal government paused withholding wages due to unpaid student loan debt.
If you are not currently on your federal student loans, beware of any suspicious collection activities through May 2022. These may be scams by fraudulent debt collectors who want to take advantage of borrowers who are unaware of this student forgiveness procedure.
Student loan borrowers who are at risk of defaulting on their private student loans — or their federal loans when patience runs out — can consider refinancing to avoid late payments. Borrowers who refinanced them to a longer repayment period on credibility were able to reduce their monthly payments by an average of $250, making student debt more manageable.
Keep in mind that refinancing your federal student debt into a private loan will make you ineligible for select benefits offered by the Department of Education, including income-based repayment, COVID-19 administrative forbearance and federal student loan forgiveness programs such as the PSLF.
Browse student loan refinancing rates from private lenders in the table below and Visit Credible to see your estimated price and decide if this debt repayment option is right for you.
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