Was the latest student loan pause really necessary?

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The White House just announced the moratorium on student loan payments that was scheduled to end on May 1, will extend to the end of August.

 

This will be the sixth extension since former President Trump paused federal student loan payments as part of the CARES Act in early 2020. Over the past two years, the federal government made monthly payments on most federal student loans optional – providing relief for potentially 40 million borrowers.

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The timing of the announcement comes on the heels of recently released research from Student Loan Hero.

 

The LendingTree-owned company polled more than 1,000 federal student loan borrowers. The survey found that 3 in 4 respondents “report not being financially ready to resume monthly payments.” They now have until Aug. 31 until the moratorium ends.

 

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The extra money makes a difference

Most Americans who skipped voluntary payments during the moratorium used the extra money for necessities like groceries and housing costs. Others used it to get out of debt or to “get back onto their feet financially.”

 

With one less bill to worry about, some Americans were able to stay afloat. But that doesn’t mean they’re prepared to take on that responsibility again.

 

One survey respondent said, “I did not have money to pay [the loans] at the time. I don’t know what I would have done if they were not paused, and still don’t know what I’m going to do when they continue.”

 

Seventy-two percent of federal loan borrowers said they aren’t financially ready to resume their monthly payments. That number jumps for workers whose income was hurt by the pandemic – 9 in 10 said they aren’t prepared to pick up their payments. And they aren’t the only ones struggling.

 

“Before the pandemic arrived on U.S. shores about two years ago, older borrowers were already reeling,” writes Andrew Pentis, certified student loan counselor with Student Loan Hero. “More than half of Gen Xers – many of whom may be saddled with high-interest federal parent PLUS loans – say their debt caused them to struggle in advance of the moratorium.”

 

Even before the pandemic, 11% of student loans were delinquent by at least 90 days.

 

Find out: Grants to Pay Off Student Loans

A necessary extension

Anticipating the resumption of payments, borrowers grew even more stressed than before. Previously, the pause on payments was scheduled to end in January. Americans are about 40 percent more stressed about making their payments now than they were then.

While campaigning, Biden promised widespread student loan forgiveness. As Debt.com reported, he promised to forgive $10,000 in student loans for all borrowers. He also promised to pay off the balance for any borrower who attended a public college or HBCU that makes less than $125,000 per year.

 

So far, he’s provided some loan relief for targeted groups but has yet to actually fulfill these promises. And based on his 2023 budget proposal, he doesn’t plan on doing so in the next year.

 

Some experts say that Biden should use the moratorium to actually fix the “broken” student loan system. Business Insider says the chair of the Senate education committee, Patty Murray, is one of those people.

 

“Everything we are asking to be done can be done at an administrative level,” Murray said. “That is the quickest way to get this moving. And we are encouraging them, asking them, begging them to please do that.”

 

This article originally appeared on Debt.com and was syndicated by MediaFeed.org.

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Private student loan relief options

 

Private student loans can help fill the gap needed for students to pay for their tuition and living expenses, but they do not have the same relief programs that federal student loans provide.

 

Federal student loans offer more borrower protections after students graduate, especially if they face difficult economic circumstances such as the loss of a job, being furloughed from a position or if their salary is inadequate to pay all their bills.

 

When borrowers take out a federal student loan, they have a few different options to choose from such as forgiveness or deferment programs until their financial circumstances change.

 

Related: How do
student loans affect your credit score?

 

fizkes / istockphoto

 

The options for private student loan relief are fewer. Private student loan forgiveness does not exist and no lenders offer this option.

 

When graduates face hurdles in repaying their private student loans, some lenders provide their own temporary assistance programs. These programs may provide temporary assistance to borrowers and the programs will vary based on the lender.

 

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Read the fine print on temporary relief programs offered by private lenders. Generally, interest will continue to accrue while the loan is in forbearance, which can make the loan more expensive in the long-term.

 

However, if you’re struggling to make repayments, securing forbearance could help provide breathing room to help you get back on track without missing payments.

 

If you are not sure whether or not the lender offers forbearance or other temporary assistance programs, try to contact them before missing any payments. They may have an option that could help or be willing to work with borrowers who are struggling.

 

Missing payments can potentially impact a borrower’s credit score. And if the borrower has a co-signer, their credit score may feel an impact as well.

 

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The federal government has extended some relief options to borrowers with federal student loans due to the COVID-19 pandemic. Most of these policies do not apply to borrowers with private student loans.

 

As of March 2021, some borrowers with private student loans in default qualify to have their student loan payments paused. Borrowers with a defaulted loan made through the Federal Family Education Loan (FFEL) Program, may qualify for the federal protections offered. The FFEL program loans were made by private companies but were backed by the federal government. The program ended in 2010.

 

 

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Since there aren’t any real loan forgiveness options available for borrowers with private student loans, repaying them may become a financial priority. The repayment period for private student loans may vary based on lenders, so review the terms and payment schedule with your lender.

 

Some private student loans may have a grace period—a period of time after a student graduates where payments are not due. This will depend on the lender, so review your loan terms to find out if your private loan is eligible for a grace period. Interest may accrue during the grace period.

 

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Other strategies to that can help students as they repay their student loans include:

  • Budgeting with Purpose. Factor student loan payments into your budget and prioritize repayments.
  • Enrolling in automatic payments. This can help you avoid missing payments. Some lenders may even offer a rate discount to borrowers who do enroll, so it’s worth asking.
  • Funneling additional income to student loans. Influx in cash thanks to a recent birthday, tax refund, bonus at work? Make an overpayment to the student loan.
  • Consider refinancing. Student loan refinancing can help qualifying borrowers secure a more competitive interest rate or preferable terms. Lowering the interest rate on a student loan could help borrowers save money over the life of the loan.

 

 

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Refinancing could result in a lower interest rate which could also lower the minimum monthly payment. In some cases, getting a lower monthly payment requires extending the life of the loan, which can ultimately cost more.

 

Student loan refinancing means a new loan is obtained at a new interest rate and possibly a new term or the number of years you have to pay off the loan.

 

Borrowers can generally choose between fixed or variable interest rates, depending on the options available at the lender they have decided to borrow from.

 

Private lenders will generally rely on information like a borrower’s credit score and employment history to determine how much money a person can borrow, and at what interest rate.

 

Borrowers who are able to secure a lower interest rate may find that refinancing can help them spend less over the life of the loan. Additionally, a borrower with multiple private student loans might appreciate the opportunity to streamline their monthly payments to a single sum with a single lender.

 

 

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Some borrowers may be able to get some private student loan assistance, depending on the programs offered and policies in place with their private lender. In some cases, refinancing may make sense for borrowers who can qualify for a lower interest rate.

 

Learn More:

This article
originally appeared on 
SoFi.comand was
syndicated by
MediaFeed.org.

 

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IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF SEPTEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE  FOR MORE INFORMATION.

 

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