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Student loan borrowers have a little longer to defer repayments since President Biden on Wednesday extended the federal student loan moratorium until Aug. 31. This extension means over 43 million Americans can defer repaying their federal student loans even longer without incurring additional interest.
This came as a surprise to some as the United States continues to ease pandemic-related restrictions and many Americans are returning to work. But for those grappling with the economic fallout of the pandemic and record-high inflation, there’s some breathing room right now.
But with less than 150 days until the next deadline, consumers shouldn’t feel too comfortable as payments will eventually resume.
Select what steps consumers should take amid renewal and how consumers should prepare to pay off their debt in the meantime.
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The student loan moratorium extensions have been very helpful to the 43 million Americans who owe the federal government a total of $1.6 trillion. The latest extension is a relief, but borrowers shouldn’t count on more extensions — instead, they should prepare to start repaying.
Andrew Pentissays a student loan expert, Select borrowers should “start planning for August, September and beyond, not wait. That way, you already have a plan to make sure you avoid late or missed payments when payments resume and work strategically to end your debt.”
Pentis also says borrowers should take several steps to ensure their eligibility for the student loan moratorium and prepare for the end of the payment freeze.
What you should do by August 31st
Pentis recommends first “contacting your Federal Loan Servicer to confirm your ongoing eligibility for the pause and to discuss options for processing repayment after the moratorium ends.” If your servicer isn’t particularly helpful, do the research yourself or work with a certified student loan or credit counselor at an accredited nonprofit counseling agency.”
If you decide to work with a student loan counselor or agency, it is important to make sure they are fully certified as there are many student loan scams out there.
He then urges borrowers to “put your financial house in order.” This includes prioritizing things like topping up your emergency fund in a high-yield savings account like the Ally Online Savings Account.
Ally Bank online savings account
Ally Bank is a member of the FDIC.
Annual Percentage Return (APY)
No monthly maintenance fee
Up to 6 free withdrawals or transfers per billing cycle *The 6/statement withdrawal limit is being waived during the Coronavirus outbreak under Regulation D
Excessive transaction fee
Offer checking account?
Offer ATM card?
Yes, if you have an Ally checking account
You should also learn about all of your repayment options, improve your credit score, monitor your credit score, and pay off other high-interest debt. Consider a free credit monitoring service, like from Experian, to keep track of what debt you owe and how it’s affecting your credit score. Some may even consider investing instead of paying off their student loans while accruing no interest.
While there are currently no payments required and no interest accruing, Pentis explained that for those in a financially sound position, it might make sense to move aggressively with additional payments or even consider refinancing student loans to earn a lower APR .” If you put more into your student loan balance now while you’re not accruing interest, you should be able to save more in the long run: when the deferral ends, interest will accrue on a smaller main balance, meaning less interest expense overall.
If you’re considering refinancing your government student loans, it may be best to wait until the moratorium is over. If you were to refinance your government student loans, they would be serviced by a private lender, and while you may receive a lower interest rate, these private student loans do not qualify for the moratorium. If paying off your debt or refinancing isn’t an option, an income-controlled repayment plan or student loan forgiveness might be worthwhile.
However, if you already have personal student loans, refinancing can be a good option as it can save you thousands of dollars in interest costs. Select ranked SoFi Student Loan Refinancing as the best overall student loan refinance company because of no application and closing fees and other benefits.
SoFi student loan refinancing
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Federal, private, college and student loans, Parents PLUS loans, medical and dental residency loans
Variable Rate (APR)
From 2.24% (prices include 0.25% autopay rebate)
Fixed Prices (APR)
From 3.99% (prices include 0.25% autopay rebate)
From $5,000; over $10,000 for medical/dental residency loans
minimum credit rating
Allow one co-signer
Read more about student loan refinance
Biden had intended months ago to end the moratorium, but a spike in Covid-19 infections prompted an extension. And although Some lawmakers have asked to extend it to the end of 2022, with the preference of eliminating student debt entirely — forgiveness has made no headway on Capitol Hill.
“Borrowers should definitely not get their hopes up [forgiveness] and should go about their business as normal,” says Pentis.
So if you have student loans and are benefiting from the moratorium, it’s best to create a plan to start repaying them as soon as the moratorium is lifted. That way, you can rest assured that you can pay off your student debt once and for all.
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Editorial note: Any opinion, analysis, review, or recommendation expressed in this article is solely that of Select’s editors and has not been reviewed, approved, or otherwise endorsed by any third party.