On January 20th, his first day in office, President Biden suspended student loan payments and interest through September 30. For anyone with a federal student loan, this means you don’t need to make payments until October 2021, no interest will accrue to your outstanding balance, and if you are in default then your loan will not be collected during that time. While that is obviously great news and gives you breathing room by deferring payments, it’s important to remember that this merely pauses payments for a few months; the debt will still be there and you will have to resume payments Oct 1 (unless an extension is passed).
Save your Payments
While your payments are paused, if you have income then it’s a good idea to save the money you would have made for your student loan payments so you can use this time to build a financial cushion. That way when October rolls around, you will have some savings to fall back on and you will be ready for your student loan payments to resume. You can also still continue to make manual payments on your loan if you wish, but auto debits have been suspended until October 1.
Biden also wants to cancel up to $10,000 in student loan debt per student, but this would require an act of Congress and other hurdles so don’t count on this relief yet. You should still plan on including student loan payments in your budget.
Lower your Payments
During this time, you should plan on keeping your future payments as low as possible for when they do resume. The best way to keep your payments low is to enroll in an income based repayment plan. These payments are based on your adjusted gross income, so the payments are limited as a percentage of your income. The less you make, the lower your monthly payment will be. It’s a good way to manage your payments over a long period of time, with payments as low as $0 and loan forgiveness possible after 20 years of payments.
You can also defer your payments if you become unemployed or suffer certain medical issues that prevent you from generating income. Check with your student loan servicer for details. Don’t defer payments without getting written confirmation from your loan servicer first, as student loan debt cannot be wiped away in bankruptcy so if you miss payments it will affect your credit report.
To see your options, the Department of Education has a useful simulator that allows you to see your options and how it affects your overall financial plan.
Be Ready
Once you know your options, it’s a good idea to plan in advance since when October rolls around and millions of students are contacting their servicers at the same time it could be difficult to get things done in a timely manner. Contact your loan servicer and get all of your information ready so you are ahead of the pack.
