Update 1/28/21: President Biden has signed an executive order extending the student loan forbearance through September 2021. That being said, much of the advice in the second half of the blog still stands (just with a different deadline). As a borrower, you must be proactive regarding forbearance. When it ends, you need to be ready.
For more information regarding the new executive order and what future student loan legislation may look like, check out this follow-up post: Solving the Student Loan Problem: Biden’s Executive Order & The Future Outlook of Student Loan Legislation.
The House and Senate have finally passed a second stimulus bill to the tune of $900 billion.
Surprisingly, despite the bill being over 5,000 pages long, student loan relief is nowhere to be found.
Background of Student Loan Relief in 2020
Since March, the federal government has granted an administrative forbearance for student loan borrowers via multiple presidential executive orders and the CARES Act.
For federal loan borrowers, this means that payments have currently been $0 and interest 0%.
For borrowers working towards forgiveness, the government has counted all $0 payments towards the forgiveness for both traditional and Public Service Loan Forgiveness (PSLF) borrowers.
It is important to note that PSLF borrowers were still required to be working a minimum of 30 hours per week and were on an Income-Driven Repayment Plan as stipulated by the original legislation that sets the rules for PSLF.
New Stimulus Bill, No Student Loan Relief
An early version of the stimulus proposal included an extension for the forbearance through the end of April. Some members of congress were even arguing for an extension through September.
However, the final version of the bill is now missing a summary for student loans; federal student loan relief is no longer part of the bill.
As a result, borrowers will need to start making payments after the current executive order ends on January 31, 2021.
Potential Biden Loan Forbearance Extension
While it may be disappointing for borrowers who were hoping for another student loan extension, it is important to note that another extension may be on the horizon.
Just as the Trump administration has implemented multiple executive orders placing a moratorium on federal student loan repayments, the Biden administration may likely do the same thing.
Therefore, we may still see an extension to the end of April, if not longer.
What Should Borrowers Do
First and foremost, go through the motions with your loan servicer to restart your payment, but pay close attention to the news after January 20. Watch for any potential executive orders extending the moratorium on federal student loan payments. In the end, if that does not happen then you will want to be diligent.
- For those on a Standard Repayment Plan and not seeking forgiveness, be sure that payments start in February. Borrowers must practice a sense of due diligence to be sure their payments are on time. If you cannot afford your payments, consider an Income-Driven Repayment Plan (IDR Plan) to stay in good standing with your loans and free up cash-flow, or a deferment, for short-term relief if you need to maximize cash-flow.
- For those on an Income-Driven Repayment Plan and seeking loan forgiveness, reach out to your loan servicer to find out when you need to recertify your income for your IDR Plan. You can recertify your income through your loan servicer or on the studentaid.gov website. Be sure that your payments start on time and you are on the correct IDR Plan.
- For those on an IDR Plan who experienced a drop in income during 2020, consider a strategy for recertifying your income after you file your taxes. An important feature of the Federal Direct Loan Program is that you can recertify your income as many times as you need to per year. Many borrowers will need to certify their income with their 2019 taxes, but consider recertifying your income after you complete your 2020 taxes to lock in a lower payment for another 12 months. Ultimately, if you are on an IDR Plan and seeking forgiveness, it is always a better strategy to pay less in payments and save the remaining cash-flow for events such as a loan forgiveness tax burden or retirement.
- If you have been working towards loan forgiveness, DO NOT let your loan servicer consolidate your loans. This will reset your loan forgiveness timeline. Typically, the federal direct loan consolidation is used at the beginning of a repayment period immediately after graduation and makes less sense to execute as the years go on.
While this may be the end of the moratorium on federal student loan payments, many are hopeful that there will be more executive orders from the next presidential administration to provide continued relief for borrowers through the end of the pandemic.
Ultimately though, the relief will end sooner or later, and you need to have a plan to be prepared for when it does end.
When it ends, remember that there are many government programs– extended repayment plans, Income-Driven Repayment plans, traditional forgiveness programs, and the Public Service Loan Forgiveness program.
Work with your loan servicer, but keep in mind they are notorious for giving poor advice.
Before making any changes to your loans, exercise due diligence, do your research, and seek professional advice.
Make well-informed decisions and shy away from spontaneity!