Motivating borrowers to resume student loan payments in May will be ‘a challenge,’ officials say

Starting this May, the Department of Education will resume the collection of federal student loan payments after more than two years of COVID-19 emergency forbearance. 

Despite efforts by the Biden administration to prepare the 42.3 million student loan borrowers, officials said that it will be a "significant challenge" for borrowers to avoid delinquency when forbearance ends, according to a new report from the Government Accountability Office (GAO). 

"Education officials said that the department has been communicating regularly with borrowers since loan repayment was suspended in March 2020, but they expect it will still be a challenge to motivate borrowers to resume repaying their loans after over two years of payment inactivity," the GAO reports. 

Nearly 60% of Americans want the student loan payment pause to be extended until 2023, recent polling data showed. However, the Education Department has not indicated that it plans to extend the forbearance period again. 

Keep reading to learn more about the end of federal student loan forbearance, including how you can prepare for payments to resume in May. One option is to reduce your monthly student loan payments by refinancing to a private loan at a lower interest rate. You can compare student loan refinance rates on Credible for free without impacting your credit score. 

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Some student loan borrowers at higher risk of delinquency

While the Education Department expects it will be difficult to get many borrowers to resume student loan payments, officials said that there are some who are at a higher risk of defaulting on their loans. 

This includes student loan borrowers who didn't complete their degree and those who were in delinquency before the payment suspension began. Additionally, borrowers who started paying their loans in the past 3 years are considered at-risk, because they haven't been required to make payments on their student loans for the majority of their time in repayment. 

The Biden administration is providing targeted outreach to these borrowers in an effort to reduce their delinquency risk. For example, the department is requiring loan servicers to "conduct phone outreach campaigns to these at-risk borrowers to inform them of their payment due date and the various programs and flexibilities available to help them resume repayment," the GAO said.

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What happens when you're delinquent on your student loans?

For student loan borrowers who can't resume payments in May, delinquency comes with tangible consequences. If you're delinquent for 90 days or more, your loan servicer will report the missed payments to the three major credit bureaus. This will result in a derogatory mark on your credit report that can negatively impact your credit score for years to come.

Borrowers who are in delinquency for an extended period are at risk of defaulting on their loans, in which the entire unpaid loan balance plus interest becomes immediately due. Going into default comes with more serious consequences, since the loan servicer may sue you over the debt. From there, the courts may garnish your wages or withhold your tax refund and other federal benefits to repay the loan amount. 

If you're at risk of going into default, the Education Department recommends switching your repayment plan, applying for deferment or consolidating through the Direct loan repayment program. You may also consider refinancing to a private loan at a lower interest rate to reduce your monthly payments. However, this will make you ineligible for income-driven repayment (IDR) plans, federal forbearance and select student loan forgiveness programs. Visit Credible to learn more about student loan refinancing through a private lender.

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How to prepare for the end of student loan forbearance

About 50% of all federal student loan borrowers were identified as at-risk of becoming delinquent when payments resume in May, according to data the GAO acquired from student loan servicers in October 2021. If you're worried about repaying your student loan debt, here are a few ways to prepare for the end of forbearance:

• Update your contact information on the Federal Student Aid website. Between August and November 2021, the Education Department sent a series of informational emails to about 35 million borrowers, the GAO said. Valid email addresses are still missing for about 25% of defaulted borrowers.
• Re-enroll in automatic payments. Borrowers who were making loan payments via auto-debit prior to the forbearance period will need to confirm they want to re-enroll in automatic payments. Without this confirmation, borrowers who were previously enrolled in autopay may miss their first payment.
• Sign up for an income-driven repayment plan (IDR). It may be possible to limit your federal student loan payments to 10-20% of your disposable income by enrolling in an IDR plan. To meet the eligibility requirements, you'll need to certify your current annual income and family size through your loan servicer.
• Apply for additional temporary relief. The Education Department offers several ways for borrowers facing financial difficulty to temporarily suspend payments, including economic hardship and unemployment deferment. These nonpayment periods can last up to 36 months, and interest may accrue on your loans during this time.
• Lower your monthly student loan payments by refinancing. If you've exhausted your other options for reducing or deferring your federal student loan payments, it may be possible to reduce your monthly payments by refinancing to a private student loan at a lower interest rate.

A recent Credible analysis found that well-qualified borrowers were able to reduce their monthly payments by more than $250 on average by refinancing to a longer-term loan. Use Credible's student loan refinance calculator to estimate your potential savings, so you can determine if this strategy is right for your financial situation. 

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