Biden announces student loan payment pause extension: What borrowers can do now

The Biden administration is extending the federal student loan payment pause until August 31, the White House said Wednesday. Forbearance was previously set to expire May 1, which means about 41 million borrowers will have an additional four months to financially prepare for repayment.

"If loan payments were to resume on schedule in May, analysis of recent data from the Federal Reserve suggests that millions of student loan borrowers would face significant economic hardship, and delinquencies and defaults could threaten Americans’ financial stability," Biden said.

This is the fourth time the Department of Education has issued a student loan forbearance extension since President Joe Biden took office. During the forbearance period, payments and interest on most federally-held student debt will continue to be suspended.

Over the past several months, prominent Democrats have urged the president to extend the payment pause and cancel student debt via executive action. And White House Chief of Staff Ron Klain recently said that Biden would explore "executive action student debt forgiveness" before monthly payments resume.

Keep reading to learn more about the most recent forbearance extension, as well as how you can prepare for student loan payments to resume in September. One strategy to consider is to lower your monthly payments by refinancing to a private student loan at a lower interest rate. You can compare student loan refinance rates for free on Credible.

HOW YOUR STUDENT LOANS COULD BE IMPACTED BY THE FED RATE HIKE

How to prepare for the end of forbearance

With the payment pause extended through the end of August, borrowers now have more time to prepare their finances for federal student loan repayment. Here are a few steps you can take to get ready for the end of forbearance:

• Get in touch with your student loan servicer. Millions of borrowers have had their loan balances transferred to a new servicer during the forbearance period. Reach out to your loan servicer for more information about your payment due date, monthly payment amount, remaining loan balance and current interest rate.
• Re-enroll in automatic payments. Borrowers who have been moved to a new servicer will need to re-enroll in autopay before forbearance expires to avoid missing their first payment. Federal Student Aid (FSA) offers information on how to sign up for automatic payments through your loan servicer.
• Sign up for an income-driven repayment plan (IDR). Federal student loan borrowers may be able to limit their monthly payment to between 10% and 20% of their disposable income through an IDR plan. After a period of 20 or 25 years of making payments, the remainder of your student loan debt will be discharged.
• Apply for additional federal deferment. The Education Department offers several federal student loan deferment programs that allow borrowers to suspend their loan payments for up to 36 months, depending on eligibility requirements. However, interest may accrue during deferment, which can add to the total cost of borrowing.
• Consider student loan refinancing. Refinancing to a private loan at a lower interest rate may help you reduce your monthly payments, get out of debt faster and save money over the life of the loan. A Credible analysis found that well-qualified borrowers who refinanced to a longer-term student loan were able to save more than $250 per month, on average.

THESE 2.4M BORROWERS MAY NOT GET STUDENT LOAN FORGIVENESS

It’s important to note that refinancing your federal student debt into a private student loan would make you ineligible for certain protections like IDR plans, economic hardship deferment, administrative forbearance and federal student loan forgiveness programs like Public Service Loan Forgiveness (PSLF).

You can browse current student loan refinance rates from private lenders in the table below. Then, you can use Credible’s student loan refinancing calculator to determine if this debt repayment strategy is right for your financial situation.

THIS IS THE AVERAGE STUDENT LOAN DEBT IN EVERY STATE

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