Update on the Student Loan Forbearance Program

Last fall, you may have seen our blog post on the first extension of student loan payments. As of now, student loan forbearance is set to expire on May 1, 2022. What does this mean for you and your student loans?

The Backstory

The student loan forbearance program began as a response to the COVID-19 pandemic in March 2020. More specifically, the student loan payment pause included the following relief measures for eligible loans:

  • Suspension of loan payments
  • 0% interest rate
  • Stopped collections on defaulted loans

The program has been extended multiple times under both the Trump and Biden administrations, most recently with the December 2021 announcement of an extension date of May 1, 2022. While it’s unclear whether we’ll receive another extension come May, it’s best to prepare for all scenarios!

The Strategy

Before considering your options, collect all the information that you have pertaining to your outstanding student loans. Keep an eye on your email for information related to:

  1. your interest rate after forbearance expires (quoted as a percentage, generally from 4% to 8%)
  2. the outstanding balance
  3. future required monthly payments

We’re starting to see this information roll in for our clients!

Next, evaluate your options:

1. Stick with your current lender and repayment plan

Who should consider this? Well, everybody!

ProsCons
You retain flexibility and protections
provided by the federal government,
including: future forbearance or forgiveness programs and income-based repayment
options.
Your interest rate (i.e., the cost of the loan) might be higher than if you refinanced with a private lender.

2. Stick with your current lender, but select a new repayment plan

Who should consider this? If you do not have enough income to cover required monthly payments under your current plan, you can check out alternative payment methods. We recommend checking out the federal student loan simulator here.

ProsCons
If you’re having trouble affording your
payment amount, the government has
flexible options payment plans that are
driven by factors such as your income and
family size.
Can extend the amount of time you’re paying your student loans. Additionally, income-driven repayment programs might result in a large tax burden if they result in forgiveness.

3. Refinance with an outside lender

Who should consider this? Those with strong income, good credit, and a high (>5%) interest rate through their federal program. We love researching the refinancing options collected by Nerdwallet.

ProsCons
By lowering your interest rate, you
can substantially lower the lifetime
cost of the loan!
By refinancing with a private lender, you will remove yourself from flexibility and protections provided by the federal government, including: future forbearance or forgiveness programs and income-based repayment options.

4. Consider student loan forgiveness programs, like PSLF

Who should consider this? Anyone who works for the government or a 501(c)(3) not-for-profit full time.

ProsCons
PSLF, or Public Service Loan Forgiveness,
is a program that enables you to seek loan forgiveness depending on certain
qualifications such as your employer, your
loan type, and the number of payments
you’ve made. On October 6, 2021, the US Department of Education relaxed the rules
for a limited time until October 31, 2022!
Very difficult to qualify. Many have tried and many have failed, but it’s always worth a shot! For more information, chat with your Commas advisor or check out the PSLF rules here.

TL;DR: Work with your Commas advisor to choose a repayment plan that makes most sense for you!

Commas is a wholly-owned subsidiary of Truepoint Inc., a fee-only Registered Investment Adviser (RIA). Registration as an adviser does not connote a specific level of skill or training. More detail, including forms ADV Part 2A and Form CRS filed with the SEC, can be found at www.usecommas.com. Neither the information, nor any opinion expressed, is to be construed as personalized investment, tax or legal advice.