The current federal student loan repayment freeze — a lifeline pausing repayments interest-free for millions of borrowers in the wake of the pandemic — is set to expire after Aug. 31, 2022.
The federal student loan freeze was first enacted in 2020 and has been extended several times, most recently in December to account for the Omicron variant of COVID-19 or effects of rising inflation.
With the no-interest repayment pause ending, you’ll want to get ready to pick your payments back up. Particularly if you have a loan in default, you should try to rehabilitate your repayment while you’re free from collections and any additional harm to your credit report.
To help you prepare, we’ll answer two questions:
How long are student loans interest-free?
The federal loan repayment pause, signed into law March 27, 2020, via the Coronavirus Aid, Relief and Economic Security (CARES) Act, was only supposed to last through Sept. 30, 2020. However, the resurgence of the COVID-19 crisis and its effect on the economy prompted multiple White House orders across two administrations to extend the relief program.
As mentioned, the student loan freeze is now set to expire on at the end of the day on Aug. 31.
“The payment pause has been a lifeline that allowed millions of Americans to focus on their families, health, and finances instead of student loans during the national emergency,” U.S. Secretary of Education Miguel Cardona said in a statement announcing a previous extension in August 2021.
Note that the relief is limited to student loans on the federal government’s balance sheet. Privately owned Federal Family Education Loans (FFEL), school-sourced Perkins loans and alternative loans lent by banks and other entities were excluded.
|How the student loan relief extension came to be …|
|2020||● July 30: President Trump said during his press briefing: “We also suspended student loan payments for six months, and we’re looking to do that additionally and for additional periods of time.”
● Aug. 8: Trump formally directed the Education Department to carry out an extension through Dec. 31, 2020 via executive order.
● Dec. 4: After hinting at the possibility before the November election, Trump directed DeVos to prolong the interest freeze through Jan. 31, 2021.
|2021||● Jan. 20: Biden formally extended the freeze via one of a dozen-plus executive orders on day one of his presidency.
● Aug. 6: The Department of Education announces another extension until Jan. 31, 2022.
● Dec. 22: Another extension keeps the relief measures in place through May 1, 2002.
|2022||● April 6: Biden again extends the relief through Aug. 31, 2022, citing continuing economic disruption from the pandemic.|
Under the current freeze, eligible borrowers’ “non-payments” still count toward requirements for forgiveness under income-driven repayment (IDR) plans and the Public Service Loan Forgiveness (PSLF) program, as well as part of loan rehabilitation agreements.
It also clarified that federal loan borrowers in default won’t see their wages garnished while the interest freeze remains in place.
As noted, the action limits temporary relief to student loans on the federal government’s balance sheet. Privately owned Federal Family Education Loans (FFEL), school-sourced Perkins loans and alternative loans lent by banks and other entities are excluded.
Fortunately, however, loans not covered by government relief could be supported by state governments and private lenders.
Here are some ways to prepare for the return of student loan repayment.
7 steps to prepare for the end of the student loan interest freeze
Staying on top of the news is the first step in preparing for the resumption of your federal loan repayment. Staring at the screen, however, will only leave you waiting, hoping for good news.
To be more proactive — and prepared for not-so-good news — consider these seven steps:
1. Replenish your emergency fund
2. Rehabilitate any loans in default
3. Adjust your repayment plan
4. Review deferment and forbearance options
5. Explore non-federal government support
6. Touch base with your loan servicer
7. Keep student loan refinancing on your radar
1. Replenish your emergency fund, if you can
If you’re wondering whether to save money or pay off debt, the answer is clear, but only through September. While the penalty-free student loan interest freeze remains in effect, refilling your rainy day fund should be a priority. This way, you’ll have a cushion in case you need to dip back into the fund to afford loan payments down the road.
Generally, it’s wise to carry three to six months’ worth of expenses in your accessible savings account. With the future of the unemployment rate uncertain, though, the more savings you sock away, the better off you’ll be.
2. Rehabilitate any loans in default before collections resume
The CARES Act promised an additional reprieve for federal student loan borrowers in default: a halt to collections and garnishments of wages and other monetary benefits. The Department of Education has also said it would refund $1.8 billion worth of recent seizures. (If you haven’t been made whole, learn about how this borrower retrieved her tax refund.)
To avoid such penalties in the future, strategize how to get your loans out of default. Your options for federally owned debt include the following:
|What to know||Pros and cons|
|Rehabilitation||● Make nine payments within 10 months, with the payment amount equal to 15% of your discretionary income||● Monthly payment amount could be as low as $5, depending on your income
● Collections could continue until you’ve made all nine payments
● Removes the record of your default from your credit history, likely boosting your credit score
● Rehabilitation is a one-time opportunity
|Direct loan consolidation||● Consolidate one or more federal loans into a new loan. You can agree to repay it on an income-driven repayment plan, or else make three straight, timely payments before consolidation occurs||● Consolidation not possible until wage garnishment is lifted
● Won’t immediately remove the default from your credit report
|Payment in full||● If you have the cash to do it, zero out your balance||● Not practical for most borrowers|
3. Adjust your repayment plan or monthly dues, if necessary
Enrolling in an income-driven repayment plan could make your payments more affordable once the student loan freeze ends. IDR plans limit your monthly dues to 10% to 20% of your discretionary income. They also account for your family size.
And you don’t have to wait until January or February to enroll. In fact, you can review your IDR options at any time — the government’s loan simulator tool could help you decide. After choosing the best repayment option for your situation, you can apply in 10 minutes, free of charge.
If you’re already repaying your debt via an IDR but have seen a decrease in household earnings (or an increase in family size), you could recalculate your monthly dues via studentaid.gov.
4. Review other options to pause repayment
The federal government’s special administrative forbearance isn’t the only way to press pause on your repayment. There are all sorts of deferment and forbearance options, including:
|Unemployment deferment||Up to three years||If you’re out of work|
|Economic hardship deferment||Up to three years||If you’re receiving welfare benefits, earning especially low income or serving in the Peace Corps|
|General forbearance||Up to 12 months at a time for a maximum of three years||Granted at your loan servicer’s discretion based on your financial challenges, medical expenses, employment or other factors|
|Student loan debt burden forbearance||Up to 12 months at a time for a maximum of three years||If your monthly federal loan dues are greater than 20% of your gross income|
Unlike the special administrative forbearance awarded to most federal loan borrowers in March, the above options…
- …must be applied for and are never automatically granted.
- …accrue and capitalize interest in most cases, except on subsidized loans and Perkins loans during a deferment.
- …can be reported to the credit bureaus and possibly affect your credit score.
5. Explore non-federal forms of loan relief
When the federal loan suspension ends, other support options will still exist.
So, if IDR and interest-accruing postponements like deferment and forbearance aren’t enough — or if you have private student loans to tend to, as well — consider the following moves:
6. Maintain communication with your loan servicer
If you don’t remember the last time you checked in on your debt repayment options, track down your federal loan servicer, and ask for assistance when you need it.
|While you’re at it …|
|Ensure your servicer has your up-to-date contact information. With a first round of federal loan servicing contracts set to expire by the end of 2021 — and a host of new loan servicers coming aboard — your debt could be transferred.|
This advice goes for private student loan relief, too. It never hurts to ask your bank, credit union or online lender for support.
A Student Loan Hero survey in June 2020 found that 70% of private loan borrowers who asked for lender support were successful in receiving it. Whether you’re offered modified repayment terms or a lower monthly payment, you might be surprised by a lender’s generosity.
7. Consider student loan refinancing in early 2022
With the federal government picking up the tab on your student loan interest (at least for now), it makes little sense to refinance your education debt to a lower interest rate. No bank can beat Uncle Sam’s current offering of 0%.
With that said, the student loan interest freeze isn’t forever. When your rates return to their normal levels in February, it could make sense to refinance federal loans. After all, private lenders are also offering very low interest rates in this pandemic-affected economic environment.
Just be sure you won’t miss federal loan protections — like access to IDR, deferment and forbearance and forgiveness programs — before you make the irreversible decision to refinance.
For any other outstanding concerns about your education debt, beyond the student loan freeze itself, visit our Coronavirus Information Center.