Things to Consider Regarding Student Loans as Federal Relief Comes to an End

By Britt Erica Tunick

If you are among the more than 45 million people in the U.S. who have a collective total of roughly $1.6 trillion in outstanding student loans, you probably are already aware that COVID-19-related student loan payment relief for federal student loans is rapidly coming to an end. If resuming student loan payments on January 1, 2021 is a troublesome prospect for your finances, now is the time to determine the best option for dealing with your remaining student debt.

As part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) passed by Congress back in March, individuals with outstanding federal student loans benefited from a temporary forbearance on payments, a freeze on interest accrual, and a halt to collections on loans in default through the end of September. The measure was extended through the end of December by executive order. Barring any action by Congress to extend the forbearance, or retroactive action by the new Administration next year, payments on federal student loans are slated to resume in January.

Following are a few things to consider when it comes to dealing with outstanding student loan debt:

• As with any outstanding loan, the first thing you should do is reach out to your lender and see if there is any way they can work with you, such as forbearance or a repayment plan based on your current income. There are a number of repayment plans that you can utilize, which will typically limit your monthly payments to no more than 20% of your income above your necessary monthly living expenses. After participating in this type of payment plan for 25 years, any debt remaining is forgiven.
• If you have private student loans, look into the viability of refinancing your outstanding debt. With interest rates still at historically low levels, there is a good chance you can knock a significant amount of interest off of the overall amount you will need to repay for your student loan. As with typical loans, however, eligibility and the rate you will ultimately receive will depend on factors such as your overall credit score and your employment status.
• If you have federal loans, refinancing is not an option. But if you have more than one federal loan, consolidation is possible. You should only go down this road, however, if it is truly necessary. Since consolidation means taking out an entirely new loan to pay off the existing loans, this usually means extending the length of time you will be repaying the debt and, consequently, the overall amount of interest you will be paying. While doing so can be an attractive option, as it translates to lower monthly payments, make sure to look at how much more you will ultimately be repaying. Other factors to consider are whether your existing loans are variable rate or fixed income. In the case of the former, depending on when you initially took out your loans, refinancing with a fixed-rate loan in the current low interest rate environment may actually prove to be an attractive option.
• If you have a loan that is part of the federal Direct Loan Program, have worked in public service for a nonprofit or government agency for 10  or more years, and have consistently made payments on your loan, you are eligible for public service loan forgiveness. Navigating this program can be fairly complicated, however, so expect to spend a significant amount of time seeking forgiveness or consider recruiting the help of a specialist.