Payments on Federal Student Loans Still On Pause
On December 22nd, 2021, the U.S. Department of Education announced an extension of the pause on federal student loan payments. The payment moratorium, currently in effect for millions of federal student loan borrowers, is set to end on April 30, 2022.
The extension will allow the Administration to assess the impacts of the Omicron variant on student borrowers and provide additional time for borrowers to plan for the resumption of payments and reduce the risk of delinquency and defaults after restart. (1)
Interest has not been accruing during the moratorium period. Essentially, the interest rate was set at 0%. Borrowers could choose to keep making their monthly student loan payments during the moratorium period if they wish. The full amount of a borrower’s payment is applied to principal. Borrowers could also choose to make partial payments during this time.
Private student loans weren’t eligible for the pause on payments. Only student loans held by the federal government were eligible. This includes Federal Direct Loans (which includes PLUS Loans), along with Federal Perkins Loans and Federal Family Education Loan (FFEL) Program loans held by the Department of Education.
While some legislators have gone on record in favor of forgiving a certain amount of federal student loan debt per borrower, the Biden administration has not taken any steps in this direction and has given no indication that it will do so. Borrowers should be ready to start repaying their loans when the pause ends on April 30, 2022. In the case of continued financial hardship at that time, borrowers should be proactive and contact their loan servicer to inquire about additional postponement.
The primary way to postpone the repayment of your student loan is to request a deferment or forbearance from your lender. This is a temporary postponement based on well-established criteria, such as unemployment or a full-time return to graduate school. Alternatively, in some cases, you may be able to obtain a cancellation of your loan, which means you do not have to repay your loan at all. An example where a cancellation is generally granted is if you become totally disabled.
If you are unable to obtain a deferment or forbearance from your lender and you do not meet the requirements for cancellation, yet you are still unable to repay your student loans, then you will be in default. When you are in default on your student loans, your loan will likely be passed on to a collection agency. A collection agency is authorized to engage in some serious collection efforts to try and get you to pay, including letters, phone calls, wage garnishment, and tax refund interceptions.
As a last resort, you may decide to file for bankruptcy. However, be aware that there are special rules governing bankruptcy and student loans; not all student loans can be discharged in bankruptcy.
(1) U.S. Department of Education, 2021
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