Are You Ready For Student Loan Payments to Resume? Here Are Your Options
Biden’s student loan cancelation plan was dealt another setback this week when a federal appeals court issued a nationwide injunction temporarily barring the relief program. As of Friday, November 11, the program stopped taking applications due to a ruling by a federal district judge in Texas who deemed the plan as “unconstitutional.” More than 26 million borrowers had already applied and many more were hoping to have their debt partially or totally forgiven. Now, unfortunately, it seems unlikely that Biden will be able to follow through on his promise of widespread relief. With student loan payments set to resume sometime in 2023, many borrowers may be wondering what options are available to them. Thankfully, there are still several other ways to get student loan relief, if needed.
Student Loan Payment Relief Options
If you were among the millions eagerly awaiting approval for student loan forgiveness, the Department of Education will be holding your application until further notice. In the meantime, you’ll need to determine if you’re able to resume student loan payments in January. If you are financially unable to do so, there are several options to consider.
Request Student Loan Forbearance
Forbearance allows you to temporarily suspend payments, or make smaller payments, for up to 12 months at a time. There are two main types of forbearance: general and mandatory.
- Financial hardship
- Medical expenses
- Unemployment or reduction in hours
Your loan servicer may also grant a general forbearance for other reasons it deems acceptable. Only borrowers with Direct Loans, Federal Family Education Program Loans (FFEL), and Perkins Loans are eligible for general forbearance. Although it’s possible to request general forbearance more than once, the total cumulative limit is three years.
You may be eligible for a mandatory forbearance if any of the following apply:
- You’re currently serving in an AmeriCorps position for which you received a national service award.
- You qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
- You’re currently serving in a medical or dental internship or residency program, and you meet specific requirements.
- 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’re currently performing a teaching service that would qualify you for teacher loan forgiveness.
If you continue to meet the eligibility requirements for a mandatory forbearance, you may request additional periods of forbearance as needed.
Ask About Student Loan Deferment
Deferment is very similar to forbearance. It allows you to stop making student loan payments for a period of time. Most deferments are not automatic. You must request relief from your student loan servicer and most will require documentation to prove you meet the eligibility criteria, such as:
- Undergoing cancer treatment
- Dealing with an economic hardship
- Enrolling in an approved graduate fellowship program
- Being enrolled in college at least half-time
- Actively serving in the military during a national emergency, war, or other military operation
- Undergoing rehabilitation training
- Receiving unemployment benefits or currently unable to find full-time employment
If you’re a parent who took out a Parent PLUS loan, you may request a deferment while your child is in college (at least half-time) and for up to six months after they leave or graduate.
Interest Accrual During Forbearance or Deferment
It’s important to note that the interest on your student loan may continue to accrue during forbearance or deferment. Although interest is currently suspended due to COVID-19 relief, it is set to resume in 2023.
With a forbearance, it may be capitalized (added to your principal balance) when your forbearance ends if you do not pay it during the forbearance period. The one exception is Federal Perkins Loans.
During a deferment, however, the accrual of interest depends on your loan type. You are generally NOT responsible for paying interest on Direct Subsidized and Subsidized Federal Stafford Loans, as well as Perkins Loans and the subsidized portion of any FFEL consolidation loans.
Switch to a Different Student Loan Payment Plan
Before applying for a forbearance or deferment, you may want to consider changing to another repayment plan first. Although a deferment or forbearance can temporarily suspend payments and give you relief, there are two important impacts to consider:
- Interest accrued will increase your loan balance; and
- If you’re applying for student loan forgiveness, deferment or forbearance will likely not count toward your repayment requirements.
Switching to an income-driven repayment plan will be more cost-effective and it won’t impact your ability to receive forgiveness. In some cases, your student loan payments could be as low as $0 per month. You can also qualify for student loan forgiveness for any remaining loan balance if it’s not paid in full after 20 or 25 years. You will, unfortunately, have to pay taxes on the amount forgiven.
Check Eligibility For Other Forgiveness Programs
Even if Biden’s student loan cancelation plan never comes to fruition, you may still be eligible for forgiveness through one of the other available programs.
- Public Service Loan Forgiveness (PSLF). Available to those employed full-time by the government (local, state, federal, or tribal) or a not-for-profit organization. You must have Direct Loans, be in an income-driven repayment plan, and make 120 qualifying payments.
- Teacher Loan Forgiveness. Available to full-time, highly qualified teachers who are employed at a low-income school for five consecutive academic years. Up to $17,500 of your Direct Subsidized or Unsubsidized Loans or Federal Stafford Loans (Subsidized or Unsubsidized) may be forgiven.
- Borrower Defense Loan Discharge. If your school misled you or engaged in deceptive practices, some or all of your federal student loan debt may be discharged.
You may also qualify to have all or some of your federal student loans discharged if your school closed while you were enrolled or shortly after you left, or if you become totally and permanently disabled. Under certain circumstances, you can also have your loans discharged through bankruptcy.
Although the student loan payment pause is being extended while the fate of Biden’s loan cancelation program is determined by the courts, now is the time to prepare for payments to resume. Even if you qualify for other student loan forgiveness options, you’ll need to keep up with your scheduled payments until your application is approved.
If you know that you are financially unable to meet your payment obligations, don’t put yourself at risk for student loan delinquency or default. Switch to a repayment plan that better suits your budget, or request that your payments are temporarily suspended through forbearance or deferment.