BALTIMORE — Many people with federal student loan debt were dreading Sunday, May 1st as up until a few weeks ago, it was the date payments on their student loans were scheduled to resume after a two-year pandemic pause.
Since those student loan payments are on hold once again, payments won't have to be made until September 1st, but borrowers don't have to wait four months before taking action.
Ben Franklin said nothing is certain in this world except death or taxes, two things people can't escape. However, after the extended pause on payments is up in four months, anyone with a federal student loan can add that to the list as well, especially those in default.
Maryland Center for Collegiate Financial Wellness founder and director Dr. Tisa Silver Canady said “we’re talking about people who missed payments for at least nine months and after a two year pause, they remain in student loan default. So, part of this pause that's different from the previous pause is this fresh start that is supposed to be extended to those students who remain in student loan default.”
Canady helps borrowers navigate the student loan application and payment process.
“I just like for people to remember that although we see that overall things are moving very well there is still large groups of people who are struggling and who will appreciate this relief and hopefully use the time to come up with a plan to make their student loan repayment sustainable when they do resume,” Canady said.
Canady advises people to use the four-month payment pause extension to be proactive. Borrowers should make sure each one of their loan servicers has their correct and updated contact info for when payments resume.
Borrowers with federal student loans could look into loan consolidation. Anyone with a mix of both federal and private student loans would have to refinance their loans.
According to Debt.org, the pros of loan consolidation include having only one payment, avoiding default, having a fixed interest rate and the possibility of lower payments. However, the cons include paying more interest over time, a loss of some benefits such as restarting the clock on the length of payments made, and a shorter grace period from about six months down to two to start paying it back.
One major con is borrowers can only consolidate once. Interest rates are going up, but if they should fall after consolidating loans, borrowers would be stuck and locked into the higher rate.
Depending upon their work history, some borrowers also could use the next four months to apply for a Public Service Loan Forgiveness Limited Waiver option
“In the almost four years the borrowers were planning for the Public Service Loan Forgiveness Program, I think they’re about 16,000 people out of 1.3 million it had their application approved since the waiver went into affect last year in October. That number has increased to more than 80,000…80,000 people who are able to have their debts forgiven just through the waiver,” Canady said.
To be eligible, a loan must have had at least ten years-worth or 120 payments due, while the waiver eliminates any late or missed payments over that ten-year period.
Borrowers who were both, working for a qualified public service employer and had a loan in repayment status at the same time, may be eligible to have all of their student loan debt wiped clean.
“It’s just going back and removing some of the barriers especially the small barriers such as making a late payment making a payment that was one penny short instead of treating those payments as not qualifying. They’re just saying you know what, we’re not even going to look at the payments, we’re just gonna look at the status of the loan. And, if the status of the loan says in repayment, then we’re going to allow those months to count,” Canady said.
Canady also recommends current students complete the free application for Federal Student Aid (FAFSA) for each and every year while they're in school
“And beyond the federal government take a look at state government. The Maryland Higher Education Commission also has plenty of scholarships and grants many of them are linked to the type of degree or credential a student is pursuing. Take a look at state government and also look around the community organizations and piece together those scholarship dollars so that perhaps they don’t have to rely on student loan debt as much,” Canady said.
For those needing a loan or who already have student loan debt hanging over their head, the Maryland Center for Collegiate Financial Wellness offers a free virtual clinic called 'Office Hours,' twice a month on Facebook and Zoom.
“We are building out programs and building partnerships with institutions across the state and just trying to reach as many students and families as possible so that we can put them on the path to building those financial life skills, and not just getting by but empowering them to thrive,” Canady said.
Borrowers should check all the terms and conditions of their loans before making any changes or ask for help if there's anything they don't understand.
Borrowers with private loans such as FFEL or Perkins loans can have their loan balances paid off, consolidated into a new direct consolidation loan, and then earn credit for loan forgiveness based on past payments made on their private loans.
Tamiko Scian finished her graduate studies in 2002. She’s now a management and program analyst for the federal government, but she is still paying on her student loan debt, 20 years later. What started out as about $30,000 in student loans ballooned to over $80,000 in debt over time due to negative amortization.
Two, new consolidation loans for Scian means no longer having to make payments of three to five hundred dollars a month.
“It’s quite a reduction, just under $200 total, but it will be quite a reduction from what I had paid prior to Covid,” Scian said.
Now, she's on her way to financial stability.
“I was able to refinance my home, and I went from a 4.25% to 2.99% interest rate. I was then able to see my credit score go up after that, and then I took some cash out and I was able to pay off my car note which i’m really pleased about,” Scian said.
The Washington Post reports the president hinted in a closed door meeting with House democrats this week, that not only is he open to extending the pause again past the August deadline, but he's also considering an executive order canceling thousands of dollars of student loan debt for borrowers.
Meanwhile, five republican senators introduced the Stop Reckless Student Loan Actions Act this week in an effort to prevent the pause from being re-extended and to prevent the cancellation of any student loan debt.
