Student Loan Payments Are on Hold Until January 2022 — But Is It Wise to Pay Anyway?

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In the wake of the ongoing COVID-19 pandemic, the federal government has taken measures to provide temporary reprieve for borrowers with student loan debt. Since 2020, borrowers have not been required to make monthly payments on outstanding loans balances; while that reprieve was initially going to end in September 2021, the pause has been pushed back to early 2022.  

Although many borrowers are relieved by the pause, that doesn’t mean these former students don’t have questions. For example, even though loan payments are on hold until January 2022, is it wise to continue making payments if you can afford to do so? We’re delving into everything you need to know about how the student loan landscape has changed in the face of the pandemic — and how you can prepare yourself for the impending financial burden of loan payments resuming in a few months. 

How Does Student Loan Payment Suspension Impact Borrowers?

Since payment suspension is meant to protect borrowers, there are a few provisions in place to ensure this program doesn’t cause unintended harm to those it’s meant to help. Although student loans are notoriously some of the most unforgiving types of loans, skipping monthly payments during this COVID-19-caused reprieve won’t hold the usual consequences for borrowers. 

Notably, interest has not accrued on existing student loans during this non-payment period. The suspension is a true pause on both interest and payments — something that’s relatively unheard of, especially given just how crushing student debt is for so many Americans. When payments resume, borrowers will owe the same principal amount, and have the same accrued interest, they owed before the payment suspension began. For most traditional payment plans, loan terms will be extended for the length of time that pandemic protections lasted. Assuming the protection does end come January 2022, that will be a total of 22 months.

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However, not all repayment programs work in the same way. For example, some borrowers are enrolled in programs wherein the total number of months spent actively making payments earns them loan forgiveness. The Public Service Loan Forgiveness program is one such initiative, but there are also various income-driven loan forgiveness programs. Although payments are not due during this pause, the months still count in the borrower’s favor when it comes to these forgiveness programs. 

Another great piece of news? As part of the stimulus package that was approved back in March 2021, forgiven student loans are now tax-free until 2025. Before that, borrowers who had federal loans forgiven would still have to pay taxes on the loan. Now, borrowers can have loans forgiven without incurring a tax debt.

Should Federal Student Loan Borrowers Continue Making Payments Despite the Pause?

Some borrowers who may not have had their source of income impacted by the fallout of the COVID-19 pandemic can still afford to make payments during the pause — but should they? In general, it’s wise to pay off any debt as quickly as possible; however, student loans are a slightly different ball game, especially since different payment plans have their own unique terms. Under one plan, paying during the suspension period could be a wise choice, while, under others, it could be a waste of your resources. 

For example, employees enrolled in a Public Service Loan Forgiveness plan will have their loan(s) forgiven after 120 payments as long as they remain full-time employees of a qualifying government or nonprofit entity. The months of payment suspension count toward the 120 months, but making a monthly payment while not required will not count as an additional month. The forgivable loan will not be forgiven any faster, so it makes more sense for a public employee who can afford to pay to hold onto their would-be payments during the pause.

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On the other hand, some income-driven repayment plans are forgivable after 20 years. Although each loan is different, payments often hover around 10% of the borrower’s discretionary income. After 20 years, the remaining principal amount that’s gone unpaid will be forgiven. The months of non-payment count toward those forgiveness time clocks. So, is it sensible to make payments even when you aren’t required to do so? It all depends on your repayment strategy — and on timing. That is, some borrowers are simply waiting for their two decades to pass, while others are taking a more active approach to paying off the debt. If your loan will be forgiven during the payment suspension period, it makes sense to withhold unnecessary payments.

Under traditional payment plans, the entire loan amount will need to be paid, so a borrower who makes payments during the suspension period is shortening the length of the loan. However, borrowers must understand how their payments will be applied. Although interest won’t accrue during the pandemic-caused pause, any payments made now go toward interest that has already accrued. After all the interest is paid off, payments made during the suspension period will start chipping away at the principal balance.

On the other hand, some financial experts advise against using stimulus funds and pandemic protections to pay down debts. As long as the pandemic lingers, they reason, every person is at risk of losing their job or becoming too sick to work. Building up a more robust personal emergency fund, or simply using these relief checks to afford the basics, are likely better uses of your money. 

How Can Student Loan Borrowers Prepare for 2022?

If student loan payments begin again in early 2022, all lenders will send borrowers a statement, which includes their next payment amount and due date, no later than 21 days before said due date. To prepare, borrowers should make sure that their contact info is up-to-date so that lenders can send them these statements without any hiccups. 

After more than a year of possibly not logging into the online payment portals associated with student loans, borrowers should also make certain that they still remember all of that pertinent personal information and, in doing so, re-familiarize themselves with the site(s). It is also wise to review any automatic payments to ensure that the payment method is still viable and the amount is still correct. 

Moreover, borrowers should carefully examine the first statement they receive in 2022. The most important information? Be sure to understand the payment amount — especially since it might’ve changed. As we’ve discussed, there are several different types of student loans; lenders and loan servicers that use traditional payment plans have the right to recalculate payments at the end of the pandemic protections. That said, monthly payments may increase for some borrowers. For income-driven repayment plans, payments will remain the same unless the borrower has applied for recertification during the payment suspension period. (If your job status has changed significantly since your last payment, it may be wise to get ahead of this, too.) 

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While there has been some rhetoric about the possibility of an extension of student loan payment exemptions, the wording from the Department of Education made this most recent extension — from September to early 2022 — seem pretty final. With this in mind, borrowers should prepare now for payments that’ll resume in a few months. It’s a stark reality that financial situations for millions of Americans have changed drastically during the pandemic, so borrowers should take a fresh look at their budget and figure out how to best tackle their student loan debt next year. 

Some borrowers know that student loan payments will be unaffordable when they resume — and there are options to help remedy some of that. If the issue seems to be a temporary one, a borrower may apply for forbearance with the lender. Additionally, switching to an income-driven repayment plan reduces the payment amount to one that matches the borrower’s current income. There are also a variety of student loan forgiveness programs out there, too. The point is, start preparing now so that you aren’t overwhelmed in 2022. 

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