Written By Adam S. Minsky, JD
President Biden extended the student loan pause last month. He decided to do so in response to the ongoing legal battle over his one-time student loan forgiveness plan, which federal courts have blocked. That program’s fate will ultimately be decided by the U.S. Supreme Court sometime next year.
Biden extended the student loan pause to June 30, 2023, or whenever the Supreme Court litigation is resolved, whichever occurs first. Payments will resume 60 days after the pause ends. That means borrowers may not have to start making payments on their student loans again until August 2023.
The student loan pause has stopped all payments and frozen all interest accrual on government-held federal student loans. This includes all Direct loans, as well as federally-administered FFELP loans. Collections efforts against defaulted Direct and FFELP loan borrowers have also been suspended. The additional six-month extension will mean that borrowers covered by the pause will not have had to make payments for over three years.
But borrowers who will benefit from the additional extension may not want to ignore their student loans in the interim completely. Here are some actions that borrowers can take during the next six months.
Save money to prepare for lump sum payment on student loan balance
There’s no penalty for making voluntary payments during the student loan payment pause. And given that no interest is accruing, any such payments will more effectively pay down your loan balance than would be the case during normal repayment, when a portion of each payment would go towards interest.
However, since no interest is accruing, there's no real difference in terms of effectiveness between making a series of payments over the course of many months versus making a lump sum payment at the end of the payment pause.
Given the current high interest rate environment for savings accounts and other similar bank vehicles, it may be a smarter financial move to stash your cash in a high-yield savings account (or another similar safe, low-risk, interest-accruing account) and then make a single lump sum payment towards your loan balance when the pause ends. This gets you to the same place in terms of paying down your student loan balance but makes you a little money along the way.
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Hold off on making payments if you're on track for student loan forgiveness
According to Education Department guidance, the months of suspended payments will continue to count towards student loan forgiveness under Income-Driven Repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). This means that there’s little incentive for borrowers on track for these programs to make voluntary payments (although you still can, of course).
Request refund of payments made during student loan pause
Borrowers who made voluntary payments during the student loan pause can request a refund of those payments.
According to the Education Department, “You can get a refund for any payment (including auto-debit payments) you make during the payment pause (beginning March 13, 2020). Contact your loan servicer to request that your payment be refunded.”
Just keep in mind that your loan balance will increase by the amount of the refund.
Explore temporary student loan forgiveness opportunities
The Biden administration is currently working to roll out the IDR Account Adjustment. This initiative can provide significant retroactive credit toward student loan forgiveness under Income-Driven Repayment (IDR) plans. The credit may also benefit borrowers working towards Public Service Loan Forgiveness (PSLF).
Borrowers should review Education Department guidance for how the program works and determine whether any action is necessary to benefit.
Certify employment for Public Service Loan Forgiveness (PSLF)
If you are seeking student loan forgiveness through the PSLF program but haven't certified your public service employment in a while, now is a good time to do so. The Education Department generally recommends recertifying your employment once per year to get an updated count of qualifying PSLF payments. If you don’t periodically recertify, your PSLF payment count may not increase.
Borrowers can use the online PSLF Help Tool to generate the required PSLF employment certification forms, which must be signed by both the borrower and their employer.
Evaluate Income-Driven Repayment (IDR) plan options
While no payments are required until next summer, it’s not a bad idea to start evaluating repayment options, including Income-Driven Repayment (IDR), particularly if your income or overall financial circumstances have changed since 2020.
In addition, if you are married, you may want to explore your marital tax filing status with a tax advisor since some IDR plans will only factor in your spouse's income if you file taxes jointly. The Education Department is also developing a new IDR plan, which should be released in the coming months.
Get out of student loan default through Fresh Start
Starting next year, borrowers in default on their federal student loans will be given a unique, one-time opportunity to get out of default and restore their loans to good standing.
The initiative, called Fresh Start, may also provide some defaulted borrowers with improvements to associated credit reporting. Getting out of default is critical for borrowers to access key programs such as student loan forgiveness under IDR and PSLF.
Fresh Start isn't available yet but should be within the next few months, before the student loan pause ends. The Education Department has published a detailed fact sheet on the program.
Make sure your contact information is up to date with your student loan providers
A lot can happen in three years. Maybe you’ve moved since 2020, updated your email address, or gotten married or divorced and changed your name.
In addition, there have been some big changes to federal student loan servicing. Some servicers (such as FedLoan Servicing) are no longer in the picture, while others (like MOHELA) have stepped in to take over millions of borrower accounts.
Now is a great time to make sure you know who your servicer is and that your loan servicer and the Department of Education have the most up-to-date contact information for you. This is critical to receive important correspondence about your student loans.
You can start the process by logging into your StudentAid.gov account to check that your contact info is current on that portal. Your StudentAid.gov account can also direct you to your current loan servicer.
Not sure what to do with your student loans?
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With the announcement that the Supreme Court is scheduled to rule on Biden loan forgiveness early March 2023, I have a couple of questions:
1) Does this mean we should assume payments could resume late May / early June 2023?
2) Is there a realistic chance that dates for income recertification in 2023 get pushed back? For instance, those that are Aug-Dec recertification, any chance there is a notice that income recertification is paused until 2024?
Hi Ryan,
Due to recent lawsuits it is possible that student loan payments can resume earlier than June 2023. Regarding recertification the StudentAid.gov details that you don’t have to recertify your income before the end of the payment freeze. This is the case even if your original recertification date has come and gone during this emergency relief period.
Overall, your loan servicer will notify you of your new annual deadline to recertify student loans. Recertification dates will vary by borrower, so check with your loan servicer directly.