It’s a burning question for anyone who’s paying down their student loans and that question has been answered. No, the student loan forbearance that was begun in 2020 because of the Covid-19 pandemic shutdown will not be extended again.
As part of the debt ceiling bill negotiated by President Joe Biden and approved by Congress in May 2023, the forbearance ends this autumn. Interest on federal student loans will resume accruing on Sept. 1, 2023, and payments will be due starting in October.
According to Federal Student Aid (FSA) with the Department of Education, “Once the payment pause ends, you’ll receive your billing statement or other notice at least 21 days before your payment is due. This notice will include your payment amount and due date.”
Learning the latest on the student loan forbearance extension and fully understanding these developments can help you make decisions on your student loans.
(Learn more at Are Forgiven Student Loans Taxed?)
What Is Student Loan Forbearance?
The word “forbearance” is a legal term — it means to refrain from exercising a legal right, such as enforcing the payment of a debt.
Some people may assume that this term mainly describes the pause in making loan payments approved by President Biden. But the concept of student loan forbearance predates Covid-19.
While in college, students are urged to fill out their FAFSA form, and many make use of need-based financial aid to pay for their education. After graduation, Certain types of forbearance programs exist for people after they’ve graduated and are struggling with paying down their loans. Life happens, and sometimes people need help.
Types of Student Loan Forbearance
Student loan forgiveness has been obtainable for years. If you think you qualify for any of the forbearance programs because of your income or your career choice, go to the Department of Education website to learn more and obtain forms.
The way it works with some of these forbearances is you won’t have to make a loan payment, or you can temporarily make a smaller payment. However, the loan won’t go away unless it’s paid off or canceled, cautions the Department of Education.
An important new change made in October 2022 concerned interest capitalization.
“Finally, the rules help borrowers avoid spiraling student loan balances by eliminating all instances of interest capitalization not required by statute, which occur when unpaid interest is added to a borrower’s principal balance, increasing the total amount that borrowers may have to pay,” said U.S. Secretary of Education Miguel Cardona in a statement about new federal loan regulations.
The interest capitalization rules went into effect July 1, 2023, which is the effective date specified in the Higher Education Act for regulations issued on or prior to Nov. 1 of a given year.
General or Discretionary Forbearance
Also known as discretionary forbearance, general forbearance is available to you if you can’t make your student loan payments due to medical expenses, financial difficulties, employment change, or other reasons that the federal student aid office may accept.
Most types of forbearance are not automatic — you’ll need to submit a request to your student loan servicer using a form. Also, for some types of forbearance, you must provide your student loan servicer with documentation to show that you meet the eligibility requirements for the forbearance you are requesting
.General forbearances are available for federal Direct Loans, Federal Family Education (FFEL) Program loans, and Perkins Loans. For loans made for all three programs, a general forbearance will be granted for no more than 12 months at a time. If you’re still experiencing hardship when time runs out, you may request another general forbearance. However, there is a limit on general forbearances of three years.
For these mandatory forbearance programs, if you prove you’re eligible, your loan server has to grant a suspension of payments. The programs include:
You’re eligible for AmeriCorps forbearance if you’re serving in an AmeriCorps position for which you received a national service award.
Department of Defense Student Loan Repayment Program
You might qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
Medical or Dental Internship or Residency
You may qualify for a medical or dental internship or residency forbearance if you’re serving in a medical or dental internship or residency program, and you meet specific requirements.
National Guard Duty
If you are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment, you may be able to apply for the national guard duty forbearance.
Teacher Loan Forgiveness
If you perform a teaching service and meet certain requirements, you may qualify for teacher loan forgiveness.
Student Loan Debt Burden
Aside from forbearance, the Department of Education also offers income-driven repayment plans. They set your monthly student loan payment at an amount that’s intended to be affordable based on your income and family size.
What are the New Student Loan Relief Programs?
After the Supreme Court ruled against President Biden’s federal loan cancellation program, granting up to $20,000 for eligible loan holders, the White House announced new measures to help people struggling with repaying their federal student loans.
The SAVE Plan is the most affordable repayment plan for federal student loans yet, according to the Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments at all. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)
For federal borrowers who are required to make payments (depending on your income and family size) and have only undergraduate school loans, the monthly payments will be cut in half — from 10% of discretionary income to 5%. How long people will have to make payments depends on their loan balance.
To protect the most vulnerable borrowers from the worst consequences of missed payments following the payment restart, the DOE is instituting a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.
How to Prepare for Return of Student Loan Payment
“Will student loan forbearance be extended?” Is definitely the question people are asking. But for federal student loans put on pause because of Covid-19 shutdowns, the payment extensions are coming to an end.
To find out the size of your payment and length of your loan, contact your loan servicer. It’s possible you will have a different company to deal with than you had before the pause. Millions of borrowers, for example, are to send their federal student loan payments to new loan servicers because FedLoan Servicing, Navient, and Granite State ceased their contracts.
To find out more, visit your account dashboard and scroll down to the “My Loan Servicers” section, or call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243.
Pay Off Your Loans as Soon as You Can
Some people have found that it is worthwhile to pay larger amounts on their loans to get rid of them faster.
You won’t be penalized for paying your student loans early or paying more than the minimum required. However, you should always inform your student loan servicer by email, phone, or mail to apply overpayments to your current balance.
Consider Student Loan Refinancing
Some people holding federal student loans refinance to get different rates and terms. How to refinance your student loans: research private student loan sources, including banks and other financial institutions. The holder of the new loan will pay off the federal loan and you start paying the new entity. Your credit rating, length of employment, and other factors will be key to getting an appealing interest rate.
The disadvantages of refinancing student loans include the fact that you would no longer be eligible for government forbearance programs or income-driven repayment programs on the amount of the loan that’s being refinanced.
Consider Lantern’s Student Loan Refinancing Rates
If you are interested in refinancing your federal student loan, you will need to compare interest rates and terms to find the most advantageous deal. Compare loan rates with Lantern to see what you could qualify for. Your financial “health” will be key to what you can obtain. Once you refinance, you will no longer be able to obtain government forbearance on that part of your student loan.
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