Tips For Student Loans Resuming
Are You Ready to Resume Your Student Loan Payments 😳💸
Our economy has undergone quite a lot this past year and a half and the financial uncertainty still looms in the air. But one good outcome has been the unprecedented temporary relief for those who are still repaying student loans. Under the CARES Act, all interest and monthly payments on federally held loans have automatically been suspended through January 31, 2022, along with a 0% loan interest rate. The Department of Education has also stopped the collection of defaulted Direct and FFEL federal student loans and has expanded the 0% interest rate to defaulted FFEL loans and made it retroactive to March 13, 2020.
However, if you’re financially able to make a lump-sum payment or continue monthly payments on your student loans, you strongly should consider doing so. The benefit? Your payments will be directly applied to the principal once all accrued interest prior to March 13, 2020 is paid. This is a great opportunity to begin reducing your principal balance once the loan repayment officially resumes on February 1, 2022.
Below are a few tips for building a strategic plan for resuming your student loan payments as seamlessly as possible.
Stay in the know. It can be difficult to determine when you’ll be required to resume your student loan payments, given multiple suspensions and extensions. You may also feel hopeful that your loan will be canceled altogether. But unless loan forgiveness is officially confirmed, it’s your responsibility to know exactly when your student loan payments will resume and to make each of your payments on time. Otherwise, you run the risk of falling into a delinquent or default loan status. This can damage your credit score and prevent you from borrowing in the future.
Ensure you have updated contact information on file with your lender. Once again, it’s your responsibility to ensure your lender can reach you regarding loan status updates. If you move or change your number, be sure that your records reflect these changes.
If you need payment assistance, do your research and prepare. If you’re unemployed or will require income-driven repayment plan options as a result of the recession, know that defaulted loans do not qualify for this option. Look into the eligibility requirements to see if you qualify for one of the offered repayment plans. The enrollment process involves a lengthy administration process and the provision of your income documentation. So plan to start months in advance to ensure you don’t run out of time.
If you’re a borrower who left school less than six months prior to or during the payment suspension, you may not be in an active repayment status on your loan. You may require servicer assistance to walk you through the loan repayment process. Please be aware that it is your responsibility to initiate the process to avoid falling behind in your payments.
If you were already enrolled in an income-driven repayment plan prior to the payment suspension, you will need to take action. You may have to recertify your income, especially if your earnings decreased during the pandemic and you would like your future payments to reflect your lower income. Reach out and initiate the process a few months in advance to avoid a delay in your enrollment process.
Lastly, if loan forgiveness ever happens, it'll be considered taxable income for both federal and state taxes. This means the total amount of loans forgiven is added to your taxable income, so you must be prepared to pay the taxes owed on that amount. While this is shocking, you’re in a better position than those who are hit with this information after the fact. The good news is you can begin putting money away now to prepare for the tax amount owed. In addition, the IRS can set you up with a repayment plan for your tax bill, if necessary.
Now that you’re up to date on what to expect regarding your student loans, a strategic plan is in order. If you want customized help figuring out your debt payoff strategy, let’s chat! Schedule a call with Beyond Money, and let’s get started!