College students heading to campus this fall may be confused by recent headlines about student debt and wondering: Does any of this affect me?
Will the pause in student loan repayments that started at the start of the pandemic be extended? Will some student debt be paid off?
“It’s a very confusing time,” said Regan Fitzgerald, manager of the Pew Charitable Trusts project on student loan success.
Here is an overview of what is known and unknown and what students should be aware of.
The payment and interest pause on most federal student loans is set to end on August 31. An extension would have less of an impact on students who are still in school because they are not yet repaying their loans, financial aid experts say. (But borrowers at school are also benefiting from the pause in lending rates.)
And while it’s still unclear whether the Biden administration will act to forgive some student debt, any relief could be limited. It may target borrowers with incomes below certain limits and loans due before a certain date (possibly before 30, according to Politico. But until the plans are announced, “we’re not sure what the parameters will be,” he said Mrs Fitzgerald.
Student Loans: Important Things to Know
Student Loans: Important Things to Know
New rules. The Department of Education is preparing a new set of rules for federal student loans aimed at expanding access to various assistance programs. The measures also include restrictions on the capitalization of interest – whereby unpaid interest is added to the principal balance of the borrower, adding interest to the total amount owed.
In an emailed statement, an Education Department spokesman said the “review of the Department’s broad-based debt relief is ongoing and no decisions have been made.”
Because the rules seem to be constantly changing, it’s important for borrowers to keep up with student loan options and policies, Ms. Fitzgerald said. “Financial awareness of student loans is very important,” she said.
Students borrowing money for the fall should focus on what they need rather than speculating on whether some debt can be paid off, said Michele Streeter, associate director of policy and advocacy at the Institute for College Access and Success. a non-profit organization dedicated to promoting college affordability.
“I would strongly advise that no one should borrow on the assumption that any loans will be forgiven in the future,” Ms. Streeter said. “If I were a borrower, I would turn off the noise and focus on what I need to borrow at the moment.”
Mark Kantrowitz, a financial aid expert, advises students to “borrow only what you need, not what you can.” Your total debt at closing should be less than your expected annual starting salary, he said — ideally “much less.”
Abby Shafroth, an attorney with the National Consumer Law Center, said students are right to be concerned about borrowing too much but should also be wary of borrowing too little. “They don’t want to borrow less but then not have enough for books,” she said.
The Consumer Financial Protection Bureau has tools on its website to help you determine how much it’s safe to borrow based on your financial situation and expected income after graduation.
Here are some questions and answers about student loans:
What are the current federal student loan rates?
On July 1, federal student loan rates rose to 4.99 percent for loans granted through June 2023. Interest rates on federal loans are set each spring based on a formula and apply to all new loans made during a particular academic year. The interest rate is fixed for the term of the loan. So if the interest rate on your loan for the last academic year was 3.73 percent, that doesn’t change. (Interest rates on most student loans will be temporarily zeroed during the pause on repayments; regular rates are expected to apply when the pause is lifted.)
How much can I borrow for college each year?
Generally, dependent students can borrow up to $5,500 in federal loans in their first year, $6,500 in their second year, and $7,500 each in their third and fourth years, with a total cap of $31,000 (if graduation takes longer). Borrowing limits are higher for independent and graduate students. Parents can take out so-called plus loans at higher interest rates if additional financing is required. (Private lenders also offer student loans, though the loans lack the consumer protections of federal loans and aren’t included in the payment break.)
Will the student loan repayment pause be extended?
It seems increasingly likely as the August deadline approaches with no plans to resume payments being announced. “I would say it’s very likely that there will be another extension,” Ms Streeter said. Mr. Kantrowitz said he thinks the hiatus could be extended into next year.
Loan servicers — the companies that send out bank statements and manage payments for borrowers — have received “strong guidance” from the Department of Education not to notify borrowers when payments are resuming, Scott Buchanan, executive director of the Student Loan Servicing Alliance, told Industry Group. If the repayment pause is not extended, “we have missed an opportunity to prepare for it.”
The New York Times offers a guide to help borrowers prepare for repayment.
A spokesman for the Department of Education said it will communicate directly with borrowers about the end of the payment pause if a decision is made, adding that President Biden has indicated it will happen by the end of August.