How to prepare for student loan repayments in January 2021
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President-elect Joe Biden has publicly stated that he forgive student loans and extend coronavirus relief into 2021. But if your federal student loans are currently forborne under the trump decree, you should always prepare for the resumption of repayments in January. Nothing is guaranteed until Congress passes new legislation.
While it may sound pessimistic, being over-prepared will help you no matter what 2021 brings.
Coming up, Tayne gives her advice on what to do if you need to start paying off your federal student loans in 2021.
President Trump’s coronavirus executive order extended forbearance from interest-free federal student loans until December 31, 2020. If nothing changes, most federal student loan repayment plans, including both subsidized and unsubsidized loans , will resume in January 2021. At that point, you’ll either start paying the same amount you paid each month, or you may see an adjusted rate depending on your issuer and repayment plan.
But that could all change depending on the new administration.
Throughout his presidential campaign, Biden has promised to write off up to $ 10,000 in student loan debt, and even more for people working in the public sector. Of course, these proposals will have to go through the legislative process, so they likely won’t happen on the first day of Biden’s presidency.
In the current lame duck period, Trump is less likely to extend the existing student loan forbearance program until 2021, despite the fact that millions of student loan borrowers need this support.
“If I had a student loan of any kind, even private loans, I would look forward to the end result,” Tayne said.
While some are optimistic that Biden’s student loan plan will reduce the burden on many borrowers, chances are you’ll have to resume paying off your federal loans as early as January 2021.
In December (if you haven’t already), you’ll likely receive an automated email from your student loan officer reminding you that payments will resume in January.
Tayne suggests that you be proactive and contact your repairman now, or just log into your account and check your refund schedule or inbox for what to expect.
If your server gives you a date when you can expect payments to resume, Tayne says to mark a reminder on the calendar a few weeks in advance so you don’t miss it.
If your loans were past due for most of 2020, you need to make sure you know the highest and lowest possible amount of your new monthly payment when things start again in January.
In some cases, you may owe the same monthly amount as before. But if you were on an income-based repayment plan that needs to be recalculated every year, check to see if your payment will increase or stay the same. Your recalculation date may have been moved back six months to align with the decree, but it’s important to confirm with your service agent before assuming this will be the case for you.
You may even need to recertify or resubmit your tax returns to calculate an appropriate new amount. This process can take a month or two.
Once you have an idea of how much your expected monthly payment will be in January, take a look at your budget to see how that extra cost will affect your spending.
Either way, it’s crucial to be prepared: If the federal loan forbearance is extended after Biden takes office, you might decide to pay anyway so you can reduce your total debt while avoiding interest charges. Or you might want to put that extra money in a high yield savings account as the Vio Bank High Yield Online Savings Account build up an emergency fund.
If the current student loan relief continues until 2021, you have a choice of what to do with the money you would invest in your loans.
“I recommend anyone who has the ability to do this comfortably – without putting their long-term savings at risk – to repay their loan principal,” Tayne said. “Even if you can only afford $ 25 a month, then pay $ 25.”
Small payments on your federal loans can go even further when interest rates are at 0%.
“Ultimately, 100% of your payment goes towards principal,” says Tayne, so your payment goes even further to pay off your total debt.
The only exception to Tayne’s suggestion is if you’re currently paying a credit card.
“If you have a high interest credit card, my recommendation would be to take money out of what you pay on your student loans to pay off your card. Once you’ve got your high interest debt under control, keep putting as much money as you can towards your interest free loans and get it paid off. “
Whatever you decide to do, it’s important to consider your whole financial situation, from savings to paycheck to debt, so that you can make the best financial decisions for your own needs.
Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.