student loans

My Student Loan Relief Is Set to Expire, What Now?

Millions of student loan borrowers are in for a rude awakening after Jan. 31. The ability to suspend loan payments is coming to an end, so you need to be ready.

Since late March, as a result of the CARES Act over 35 million student loan borrowers haven’t been required to make student loan payments, nor has additional interest accrued.  The student loan relief was initially instated as a 60-day period, but it was extended three times after that — most recently on Dec. 4, when it was announced the protections will stretch through Jan. 31, 2021. 

With the deadline set to expire soon, what now?

Here are five important things to consider:

1. First, make sure you didn’t make a big loan blunder

As a borrower, it is of urgent importance to know whether your loan(s) do in fact qualify for the CARES Act relief.  Unfortunately, there have been borrowers who wrongly assumed that their loans didn’t need to be paid, so they suspended their payments.  The relief is specifically for loans through the Department of Education, such as Stafford, Perkins or PLUS loans.  Loans that don’t qualify for relief include most commercial loans issued by private lenders.  Some lenders may have followed suit and allowed for some relief, but they weren’t required to. 

Falling behind on loan payments can damage your credit score, which has countless negative impacts.  I suggest borrowers contact their lenders immediately if they are uncertain whether their loans qualify for relief.  Additionally, borrowers can check their credit report at www.annualcreditreport.com to see if any late payments have been reported.

2. Jump on zero-interest opportunity

If borrowers have been fortunate enough to maintain employment, they should absolutely be taking advantage of this zero-interest period.  Payments made to qualifying loans will reduce the principal amount owed dollar for dollar.  The payments made during this relief period will shorten the duration of required payments so loans will be paid off sooner. 

3. Don’t go crazy with that extra money in your pocket

For borrowers who have been employed and have had the ability to make payments but didn’t, it’s time to revisit your budget.  Some borrowers may have suspended payments even though they could have afforded them.  This is likely driven by a desire to experience more discretionary cash flow or to make a purchase. 

Our lifestyles can easily adjust to having more spendable cash and discretionary spending, such as the extra trips to Starbucks or eating out — which can eventually feel more like “needs” than “wants.”  It is important to analyze cash flow to determine what your spending will look like once payments are required again. 

4. Bring home the bacon, one way or another

Consider earning differently in order to make payments. A graduate may have to take a job outside of their field or even a position that may pay less than what they were making before.  It is also possible to pick up part-time work on weekends to supplement a full-time position during the week. 

5. Ask about options to lower or spread out your payments

If you can’t make scheduled payments based on your earnings, then contact your lender about any income-driven repayment options.  For help, visit https://studentaid.gov/app/ibrInstructions.action for information about the four income-driven options for federal loans.  Unfortunately, most private loans do not offer income-based repayment options because they increase the lender’s cost.  Private lenders may offer to change the terms by extending the repayment period of a loan.  This will decrease a borrower’s monthly payment but will also result in more cumulative interest being paid to the lender. 

My guidance is to not sit back and hope for additional relief or forgiveness.  Take action today and be prepared for relief to expire on Jan. 31.  If it is extended further — which is a possibility — then a borrower will be further ahead by being prepared.  Additionally, meeting loan payment obligations sets up a borrower for long-term success.  They are learning about the financial responsibility of earning and budgeting, and then once loans are paid off, they can easily turn the amounts that were going toward loans to long-term savings and investments.

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About the Author

Jeremy DiTullio, CFP® , CRPC®

Founding Partner | Financial Planner, Cleveland Financial Group

Jeremy DiTullio is the founding partner and a financial planner of Cleveland Financial Group, a team of financial planners who have prodigious experience in wealth management, wealth transfer strategies and executive-focused planning. He serves clients in 20 states throughout the U.S.

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