By Brian J. O'Connor
MarketWatch Picks has highlighted these products and services because we think readers will find them useful; the MarketWatch News staff is not involved in creating this content. Links in this content may result in us earning a commission, but our recommendations are independent of any compensation that we may receive. Learn more
To thaw or not to thaw? That is the question facing President Joe Biden as the long-delayed end to the freeze on student loan payments created by the COVID-19 crisis approaches on August 31. Announced at the start of the pandemic in March 2020, the payment pause has been extended and even expanded several times, including four extensions ordered by Biden himself.
As of mid-August, speculation was rampant that Biden would grant another extension, but the Department of Education wasn’t making any promises, other than telling The New York Times that the department’s “review of broad-based debt cancellation remains ongoing and no decisions have been made.” In the meantime, student loan debtors are advised to at least prepare for resuming their monthly loan payments. For some, that may mean refinancing your student loans to better rates and terms — see the lowest student loan refinancing rates you can get here — though this has downsides (see below). For others, it may mean taking a look at your finances to create a plan for repayment. And for others, something else.
About Biden’s last extension and the student debt crisis
There’s no question that the payment freeze has brought some much-needed relief to student loan debtors. There are roughly 45 million people in the United States carrying a combined total of about $1.7 trillion – with a “T” – in balances on loans used to pay for college.
The average payment of about $400 a month is a financial burden on young people that’s been blamed for keeping recent grads at home in their parents’ basement, unable to afford their own apartments, cars, weddings and other facets of adult life. At the time of the payment pause about 25% of borrowers – 10 million people, roughly equivalent to the entire population of Greece – were delinquent on their payments. The pandemic pause has been an opportunity for them to reset those defaults and get a fresh start on handling their debt.
The pandemic relief saved borrowers billions in interest payments each month, and nearly all borrowers stopped making payments once the freeze was instituted. That’s given welcome relief to millions of people.
What should borrowers do now to prepare for the potential end of the student loan pause?
The first step is to check in with your loan servicer and make sure your contact information and loan records are accurate and up to date. The pause in your payments means that since interest payments were forgiven during the pause, your balance should be equal to what it was in March 2020.
More importantly, make sure that your information with your servicer is up to date. Since the end of 2021, nearly 10 million borrowers saw their loans transferred to new servicers, after the Department of Education set stricter standards for them — and transfers to new servicers will likely keep happening. The servicers who’ve exited or are in the process of leaving the student loan business include Navient, the Pennsylvania Higher Education Assistance Agency (often referred to as FedLoan), Granite State Management & Resources and others. Borrowers were supposed to informed but that doesn’t mean you necessarily were.
To check the status of your servicer, log into your StudentAid.gov account and select “View Loan Servicer Details” in the “My Aid” section, or call one of the numbers here for help. More information is available from StudentAid.gov.
Think about making payments automatic to get a discount
While you’re in touch with your servicer, ask about enrolling in any automatic payment program that might be available. Enrolling in autopay means that your monthly student loan payments are automatically deducted from your bank account, which can come with an 0.25% interest rate deduction to lower your monthly payments. If the pause is extended, you don’t need to do this now, but it’s something to keep in mind.
Realize you may be better off now than before the pandemic
One particularly noteworthy benefit of the freeze is that even with payments suspended, those borrowers enrolled in Public Service Loan Forgiveness or other federal forgiveness programs will still be treated as if they had continued making payments. In the case of the public service program’s 10-year repayment schedule, for example, each month of the payment pause counts as if the borrowers had kept up their repayments.
You’ll want to check your loan details and make sure you’ve gotten credit for each month during the freeze, which gets you that much closer to ending your student loan payments.
Increase your income or lower your debt to make the payment s when needed
The next step is to review your budget to see how resuming payments will change your personal cash flow. Ideally, borrowers set aside the money they would’ve paid each month, and have a cash stash that makes payments affordable. In an even better scenario, if your financial situation has improved during the pandemic and you can afford it, simply pay your loans off.
Those are both unlikely scenarios for most borrowers, however. An average loan payment of $400 a month means finding close to $100 a week in savings or additional income to make a payment. You can get some excellent budgeting guidance and ideas here , here and here . If you’re looking to bring in more cash, even more excellent advice can be found here , here and here , but be sure to avoid the pitfalls described here .
Your best bet to find money to resume your loan payments is to review your largest recurring monthly expenses and look at every option to cut those costs. Making a one-time decision to lower your cell plan, for example, gives you the same savings each and every month from now on, creating a reliable source for your loan payments.
If you’re working, find out whether your employer offers repayment assistance on student loans, which some companies now offer as a perk and recruiting tool. It also may be time to ask about a raise or other salary adjustment. During the pandemic, employers have raised wages for new hires and even paid signing bonuses, but those same adjustments don’t always extend to workers already on the payroll. Research what your company’s competitors are paying on GlassDoor.com and other sites. If you can’t get a salary adjustment, ask about a retention bonus. You can find strategies for getting a raise here and here .
Review your student loan payment plan , and get ready to switch repayment plans if needed
Most student loan borrowers start out paying the full amount of their loans over a period of 10 years to 30 years but you do have several flexible options, which you can find listed here .