We know the past year and a half has been quite the whirlwind, and as we approach summer and the economy continues to re-open, we want to bring light to some financial stress individuals may be facing. Federal student loan payments are set to resume on October 1, after an unprecedented 19-month suspension that was put in place to provide financial relief to borrowers during the pandemic.
Borrower balances have effectively been frozen for more than a year, with no payments required on federal loans since March 2020, when Congress first authorized the pause as part of one of its first major Covid relief packages. During this time, interest has stopped adding up — saving the average borrower about $2,000 over the first year — and collections on defaulted debt have been on hold.
The relief is even more significant for those who work in the public sector and may be eligible for loan forgiveness after 10 years. They are still receiving credit towards those 10 years of required payments as if they had continued to make them during the pandemic, as long as they are still working full time for qualifying employers.
Both the pause on payments and interest waiver is automatic, but only applies to federally held loans. That covers roughly 85% of all federal student loans, including those known as direct federal loans and PLUS loans that parents have taken out on behalf of their children. It excludes some federal loans that are guaranteed by the government but not technically held by it. Generally, those were disbursed prior to 2010.
The pause on payments was initially set to remain in place for seven months but has been extended by both the Trump and Biden administrations. It’s unlikely to be extended again since the economy is rebounding. We have been following the recent news of proposals to President Biden to cancel debt for American’s and will continue to report as we learn more; however, for those with student loan repayments starting up soon, its important to start thinking about your financial situation and how that wil change as you begin this repayment. For questions about your financial situation or advice on tools to help organize and automate your finances, reach out to us at email@example.com or schedule a complimentary 30-minute conversation here.