Here’s how to prepare for August
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Student loan borrowers have a bit more time to defer repayment as President Biden on Wednesday pushed back the federal student loan moratorium until August 31. This extension means more than 43 million Americans can defer paying their federal student loans even longer without accumulating additional interest. .
That came as a surprise to some as the United States continues to ease pandemic-related restrictions and many Americans return to work. But for those grappling with the economic repercussions of the pandemic as well as record inflation, this provides some breathing room for the time being.
But with less than 150 days until the next due date, consumers shouldn’t be too comfortable as payments will eventually resume.
Select details of actions consumers should take during the extension and how consumers should prepare to potentially pay off their debts in the meantime.
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The student loan moratorium extensions have been very helpful for the 43 million Americans who owe the federal government $1.6 trillion. The new extension is a relief, but borrowers shouldn’t count on more extensions – rather, they should start preparing to start repayment.
Andre Pentisstudent loan expert says selected borrowers should “start planning for August, September and beyond, don’t wait. That way when payments resume, you’ll already have a plan in place to ensure avoid late or missed payments and work strategically to end your debt.
Pentis also says borrowers should take several steps to ensure they qualify for the student loan moratorium, as well as to prepare for the end of the payment freeze.
What you need to do by August 31
Pentis recommends first “contacting your federal loan officer to confirm your continued eligibility for the pause and discuss options for handling repayment once the moratorium ends. If your service agent isn’t particularly helpful, do you- even research or work with a certified student loan or credit counselor at a licensed non-profit counseling agency.”
If you decide to work with a student loan counselor or agency, it is important to make sure they are fully certified as there are many student loan forgiveness scams out there.
After that, he urges borrowers to “get their finances in order”. This includes prioritizing things like filling your emergency fund into a high-yield savings account like the Ally Online Savings Account.
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You’ll also want to learn about all of your repayment options, improve your credit score, monitor your credit score, and pay off any other high-interest debt. Consider a free credit monitoring service, like Experian’s, to keep tabs on what debts you owe and how they affect your credit score. Some may even consider investing rather than paying off their student loans when interest does not accrue.
For now, while payments aren’t needed and interest isn’t accruing, Pentis said that for those in a strong financial position, “it might make sense to be aggressive with extra payments or even consider refinancing a student loan to get a lower APR.” If you pay more for your student loan balance now when interest isn’t accumulating, you should be able to save more in the long run: when the moratorium ends, accrued interest will be on a principle balance smaller, which means less interest charges overall.
If you are considering refinancing your federal student loans, it may be best to wait until the moratorium is over. If you were to refinance your federal student loans, they would become serviced by a private lender, and while you may receive a lower interest rate, these private student loans do not qualify for the moratorium. If paying off your debt or refinancing isn’t an option, an income-focused repayment plan or pursuing student loan forgiveness might be worth it.
However, if you already have private student loans, refinancing can be a good option because it can save you thousands of dollars in interest charges. Select Student Loan Refinance SoFi ranked as the best overall student loan refinance company for its lack of application and origination fees and other benefits.
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At the end of the line
Biden intended to end the moratorium months ago, but an uptick in Covid-19 infections prompted an extension. And although some lawmakers have called for it to be extended through the end of 2022, with a preference for full student debt forgiveness — the pardon has made no headway on Capitol Hill.
“Borrowers should absolutely not expect [forgiveness] and should go about their business as normal,” says Pentis.
So, if you have student loans and you’re in the moratorium, it’s best to create a plan to begin repayment once the moratorium is lifted. By doing this, you can be sure that you can crush your student debt once and for all.
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Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff only and have not been reviewed, endorsed or otherwise endorsed by any third party.