Student loan borrowers may now have until August 2023 before needing to resume payments. Here’s what to keep in mind.

The federal student loan repayment pause, which began in March 2020, has been extended for the eighth time this week. This extension comes as the Biden administration's debt relief initiative moves to the U.S. Supreme Court. The Department of Education announced that the cessation of student loan payments, interest, and collections will remain in effect for now, with the previous end date of December 31, 2022, pushed back. Depending on the outcome of legal proceedings, repayments could be delayed until late August 2023.

Education officials indicate that this extension aims to alleviate uncertainty for borrowers as the Biden administration seeks Supreme Court intervention regarding lower-court decisions that block relief for more than 26 million borrowers.

Payments are expected to restart approximately two months after the Department of Education can launch the program or once the legal issues are settled. Federal officials anticipate that the Supreme Court will address the case within its current term. If the program is not active and the legal matters remain unresolved by June 30, 2023, payments will resume 60 days thereafter, according to U.S. Secretary of Education Miguel Cardona.

While the suspension may have eased your financial load, it's essential to remember the goal of eliminating your debt. The typical student loan borrower faces an average debt of $38,792. Regardless of your specific balance, it’s time to rethink your repayment approach.

Consider Refinancing Your Student Loans

Best if: You have a private student loan and a good credit score.

Refinancing your student loan can be a fresh start: you obtain a new private loan to pay off your existing debt, then repay the new loan over time. If you secure a favorable rate, you could lower your monthly payment and save on interest costs.

For instance, refinancing a $39,000 loan from 7% to 3% could save you $76 monthly and over $9,000 in interest total, based on a 10-year repayment plan.

If your interest rate exceeds 5% and your credit score is solid, now is a prime time to refinance, suggests a financial planner. “Interest rates are at historic lows right now, so it’s worth asking: ‘Am I overpaying for this loan?’”

However, assess the type of student loan you hold before proceeding. Refinancing federal loans could mean losing valuable protections, while it’s often beneficial for private loans if you qualify for a lower rate.

When refinancing, obtain quotes from various lenders. A fixed-rate loan is advisable because market conditions can shift, and you want stability in your payments.

As you gather information, focus on these aspects:

  • Loan amount: Ensure it covers your current student loan.
  • Annual percentage rate: This includes interest and any lender fees; a lower APR equals more savings.
  • Loan duration: Determine how long you'll be paying the new loan.
  • Lender reputation: Research the lender through the Consumer Financial Protection Bureau’s Complaint Database, the Better Business Bureau, and customer reviews.
  • Additional terms: Inquire about any fees and if the lender offers hardship programs for future financial difficulties.

Explore Income-Based Repayment Options

Best if: You have a federal student loan and desire a lower monthly payment.

Income-driven repayment plans adjust your monthly payments based on your income and family size, stretching the loan term to 20 or 25 years instead of the standard 10 years, thus lowering your monthly payment. Currently, around 2.75 million federal borrowers are using this option.

“This approach creates a more manageable payment aligned with your earnings,” says a financial expert.

Utilize the Department of Education’s loan simulator for personalized repayment plan options, monthly payment estimates, and total interest costs.

With extra budget flexibility, you can allocate more toward your student loan or focus on high-interest debts. “Consider prioritizing payments on debts with higher rates,” a financial strategist advises.

Investing in mental wellness, such as therapy, might also be beneficial.

Pay Off Your Student Loans

Best if: You have sufficient income to manage payments.

Many borrowers have paused payments for months due to the executive orders extending the repayment halt.

But just because you can delay payments doesn’t mean you should. If you’re financially stable and aiming to clear your debt, stay focused on your repayment plan. If you’re not spending on vacations or celebrations currently, it’s an excellent opportunity to continue addressing your debts. If you want to fast-track your repayment, we have strategies to help you do that.

While President Biden proposed $10,000 in debt cancellation per borrower during his campaign, it’s uncertain when or if that will materialize. Thus, if you can afford it, continue with your repayment strategy.

Set clear goals and develop a repayment plan. Here’s how:

  • Check your debt balance: Find this on your latest statement or contact your loan servicer.
  • Review your budget: Assess your monthly income against necessary expenses like housing, utilities, groceries, and minimum debt payments.
  • Calculate remaining funds: Subtract your bills from your income to determine your available amount for loan payments each month.
  • Establish a goal: Based on your loan balance and any extra payments, calculate the time frame for full repayment. For instance, a $10,000 loan with an additional $500 payment monthly could be cleared in under two years.
  • Stay committed: Adhere to your repayment strategy. Utilize any unexpected funds—like tax refunds or bonuses—to reduce your student loan principal.

You may need to trim your spending in specific areas to effectively manage your student loans.

“Finding that extra cash requires self-reflection,” a financial planner notes. “Examine your expenses and be honest about what’s essential versus what’s merely desired.”

What if I Can't Afford My Student Loan Payments?

If you’re in a forbearance program but still facing challenges, “first, check the terms of your agreement to see if it specifies a restart date or extension options,” advises a financial strategist. “Next, assess your situation. If the reasons for forbearance still apply, take your time and communicate with your lender.”

Keep an eye out for new relief initiatives, as the administration is likely to continue supporting student loan borrowers. Consulting with a certified credit counselor can help you evaluate your budget and explore solutions. We also provide guidance on 8 steps to manage student loan struggles. Remember, you have options, and the best choice depends on your unique circumstances.