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During the presidential campaign, Joe Biden called on Congress to forgive up to $10,000 in student loan debt for each borrower. Senate Democrats have called on the president to forgive student loan debt through an executive order, but instead of relying on the president’s authority, Biden wants Congress to convene and enact legislation.
The prospect of student loan forgiveness became even more uncertain when Biden did not include debt relief for universities in his latest budget proposal, released last week. The $6 trillion budget released Friday includes a plan to rebuild America’s infrastructure. It focuses on funding affordable housing, education, and health care.
However, with no plan in sight to pay off student loan debt, now might be a good time to start paying off or refinancing your student loans.
How you handle college debt depends on the type of loan you have, whether it’s a government or private loan. If you decide to refinance, look to online loan marketplaces like Credible to get the lowest possible interest rate.
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What to do if you have federal student loans?
Federal student loans are currently “deferred,” meaning you are not obligated to repay them, and no interest accrues during this time. Some graduates forgo additional payments in hopes of having all or part of their student loan debt forgiven.
However, this grace period ends on January 31, 2022. If you have a federal student loan, you have a few options for what to do with the extra funds before payments resume.
- Continue making payments on your loan. During the forbearance period, interest will not accrue, so your loan payments will count toward the principal of your loan. This way, you can pay off your debt faster and save money on interest in the long run.
- The extra money can be used to pay off other debts. For example, if you have high-interest credit card debt, you can use your student loan payments to pay off that debt. This is a faster and cheaper way to save interest.
- Save money for future payments. If you set aside money from your student loan payments, you’ll have more money left over when payments resume in February.
We do not recommend that you refinance your federal student loans privately. That’s because you could lose federal protection and ruin your chances for future federal loan forgiveness.
If you’re not sure what type of loan you have, contact an experienced loan officer at Credible for more information.
What to do with a private student loan?
Graduates who have private student loans are not eligible for the current moratorium and will not be affected by federal loan forgiveness.
However, that doesn’t mean you can’t take immediate action on your student loans. If you have private student loans, consider refinancing while interest rates are low.
Refinancing rates for fixed-rate student loans continue to reach historic lows. Refinancing a student loan at a lower interest rate can save you thousands of dollars over the life of the loan. Borrowers who refinanced a short-term loan with Credible saved an average of $17,344.
Five key points of Biden’s extension of student loan moratorium
1. Biden administration says this is ‘final’ extension of student loan moratorium
In an announcement Friday, the Biden administration called the move the “final” extension of student loan relief, which gives students and borrowers the time they need to resume repayment. While there is no legal requirement that this is the last extension, and certainly not that it take place in early 2022, the Biden administration seems to be making it clear that borrowers should expect to resume repayment by February.
2. The student loan servicing changes could be completed by early 2022.
Although the Biden administration has not provided specific reasons for its decision to extend the student loan moratorium until 2022, it recently announced that two of the largest student loan servicers (Fedron Servicing and Granite State Management) will not renew their servicing contracts with the Department of Education. However, the recent announcement by two of the largest student loan servicers (Fedron Servicing and Granite State Management) that they will not renew their servicing contracts with the Department of Education has raised alarms among advocates and lawmakers. As a result, the accounts of millions of student loan borrowers will be transferred to another loan servicing company.
Had Biden not extended the student loan moratorium, the administration transfer would have occurred just as borrowers were resuming payments, potentially causing confusion and chaos. The Department of Education’s contract with FedLoan Servicing and Granite State Management expires this year. So if the suspension of student loan payments is extended until the end of January 2022, the Department should have enough time to transfer those accounts to new loan servicers before payments resume. The Department of Education has already begun notifying borrowers to prepare them for the transition in student loan administration.
3. The suspended months will continue to count toward the student loan forgiveness program
As with previous extensions of the student loan moratorium, the months in which payments were suspended should continue to count toward loan forgiveness programs such as income-driven repayment terms and Public Service Loan Forgiveness (PSLF). In other words, the months in which payments were suspended would be treated as payments for these programs. In addition, the suspended months will continue to count toward loan rehabilitation plans for borrowers attempting to repay their federal student loans.
The Department of Education has updated its website to reflect this extension and left information confirming that the suspended months will be treated the same as before.
4. Other student loans not yet affected by the student loan suspension
President Biden did not extend the scope of the student loan moratorium when he extended it through 2022. As a result, only federal public student loans and defaulted FFEL student loans are eligible for this extension. Federal student loans in good standing under the FFEL program, federal loans under the Perkins program, and private student loans remain ineligible for discharge.
5. How can I cancel my student loans?
Student loan advocates and progressive members of Congress continue to urge President Biden to enact comprehensive student loan forgiveness. Since April, the Biden administration has been conducting a legal review of the authority that could be the basis for certain types of student loan forgiveness through executive action. However, the administration confirmed last month that this review is ongoing. The extension was intended to give the Administration the time needed to complete this review.
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