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You may be seeing a lot of posts, alerts or receiving phone calls from financial aid centers about student loan forbearance coming to an end. But, what does that mean, and how does it affect you?
Something you may not be aware of is, when you filled out your Free Application for Federal Student Aid (FAFSA), the college or university you attended used this data to determine your federal aid eligibility. With this information, they create different financial package options available for students. It is likely you selected one of these packages and may owe money back on federal or private loans.
Whether you have been making payments for a while now, started and stopped, or, this is your first time dealing with loan repayment, it is important that you are prepared by February 1, 2022.
Let's get to it!
Step one: Understanding terminology
To start, let’s break down the difference between student loan forgiveness and student loan forbearance.
Forgiveness: refers to the release of having to repay part or all of a federal student loan. Other terms associated with forgiveness may include “cancellation” and “discharge,” though they are used in different ways. Click here for more information about these terms.
Forbearance: A pause in payments to help with relief measures including suspension of loan payments, 0% interest rate and stopped collections on defaulted loans.
Basically, what this means, is the U.S. Department of Education told us to “hold off” on paying toward these loans because of the economic crisis that came with the year 2020. Now that the forbearance is coming to an end (Jan. 31, 2022), we are expected to pick up payments as normal again.
Step two: Information to gather
Do not dial any numbers without first having the information they will need to find you. Review any old forms, emails and PDFs you saved from FAFSA or other financial aid resources.
Items you should have on hand:
Your college or university’s Financial Aid office number (can be found on most school directory sites. Otherwise, contact the Office of Admissions to redirect you)
Student ID number
Loan account numbers
Third-party login information (sites such as Mohela.com, SallieMae.com, Discover.com, etc., often pair with universities to distribute loans. Check to see if this is something you enrolled in when you were entering the school)
**Be sure you do not leave any of these account numbers or exact repayment amount over voicemail. Discuss with a real-life representative to ensure you are protected and avoiding scams.
PRO TIP: Look out for scams!
With loan forbearance being extended to the end of January, several fake offers have come out trying to persuade people to accept offers of financial aid or help. These offers have been phrased in ways such as, “pandemic grant” and “Biden loan forgiveness.” Do not accept any of these offers without first checking with your school or loan servicer to check that they are legitimate options. Click here for more information on avoiding scams.
Step three: Be proactive
You rarely hear the words “fun” and “adulting” in the same sentence. While making payments on student loans is the last thing we all want to do, there are a few easy ways to figure out where you currently stand, and how to prepare for Feb. 1.
If you do not know where to start, a good first step is contacting your school’s financial aid office. They will be able to pull up your personal files and records related to loan payments. The school may be able to provide you with the name of the third-party company that distributed loans, if applicable.
Assuming your school’s office is no help, or consists of a long wait-line, another starting point can be creating an account through studentaid.gov, a federal website that can help you apply for repayment plans, offer loan counseling and includes other loan help tools. This website is free of charge and also includes a chat-box on the site where you can ask specific questions to help guide you.
Step four: Understand your options
Turns out, there are several loopholes with student loans, forgiveness and forbearance. For example, if you work for a non-profit organization, work as a teacher, serve in the military or are totally and permanently disabled, you might quality for different repayment options.
If this applies to you, there may be additional forms you need to fill out to prove you qualify for these specific arrangements. Click here for more information on disability discharge.
Otherwise, check out the Public Service Loan Forgiveness tool (PSLF) to get the most accurate information about your current outstanding loans, job description and other options or forms available to you.
Step five: Budget
Once you have contacted your school or lender, you will have access to how much money you owe back on your student loans. Payments resume Feb. 1, 2022, so it is a good idea to start budgeting for this new withdrawal from your account.
Set aside extracurricular money for the rest of December and January. Will you have enough to make a payment in February?
Speak with your parents or guardians who helped you with finances in college. Guardians can start a custodial account for children that they control when the child is a minor. Money gathered in these accounts, similar to a 529 plan, can sometimes be used toward loan payments.
Look into income-driven repayment plans (see more below)
Income-driven repayment plans (IDRs) are designed to make student loan debt more manageable by reducing monthly payment amounts.
*NOTE: Private companies who have no affiliation with the U.S. Department of Education will often charge you a fee to fill out an IDR form with their guidance. This is NOT necessary. This link will take you to the free student aid website where you can easily create and account and access the forms for free.
IDR forms must be completed in a single session; the process takes roughly 10 minutes, according to studentaid.gov.
Terminology worth knowing:
Federal student loan: funded by the federal government
Subsidized loan: U.S. Dept. of Education pays the interest on these loans while you are in school at least half-time, for the first six-months after you leave school and/or during a period of deferment or forbearance. In other words, these loans do not rack up interest until you are out of school.
Unsubsidized loan: You are responsible for paying the interest on these loans during all periods of time. If you do not pay on the interest of these loans, it will accrue and be added to the principal amount of your loan.
Private student loan: funded by a lender such as a bank, credit union, state agency or school
Useful links & resources:
The U.S. Department of Education’s site that provides information and tools available to those paying student loans -- https://studentaid.gov/
Article explaining Biden Administration’s extension of student loan pause (ending Jan. 21, 2021) -- https://www.ed.gov/news/press-releases/biden-administration-extends-student-loan-pause-until-january-31-2022
Student Loan Forgiveness and Forbearance: Where We Stand -- https://www.nerdwallet.com/article/loans/student-loans/joe-biden-student-loans
I hope this helps some of you prepare! If nothing else sticks with you, just remember... January 31, 2021 is an important date!
Student loans are overwhelming, hard to understand and easy to put off. Set aside a day where you prepare for these new changes coming to your budget. The sooner you prepare, the sooner you'll understand your unique situation!
Here is a quick 5-minute video from Nerdwallet that also talks about preparation for student loan payments restarting.
As always, thank you for reading! If you have any other tips, resources or questions regarding student loans and forbearance, please comment below! Subscribe to The Learning Curve for FREE today!