6 Tips for Student Loan Borrowers During Unprecedented Repayment Uncertainty

Millions of federal student loan borrowers are dealing with unprecedented uncertainty right now.

Most federal student loan payments and interest have been suspended for over two years at this point. That pause, originally intended to last six months but subsequently extended multiple times by President Trump and President Biden, is technically now set to end around August 30, 2023, unless the courts rule on lawsuits sooner than that.

But top White House officials have recently suggested that an additional extension of the pause is under consideration. Meanwhile, the Education Department has allegedly instructed its loan servicers to stop sending correspondence to borrowers regarding the resumption of repayment.

This suggests that federal student loan payments may not, in fact, restart this coming May. But the Biden administration has not issued any conclusive decision.

Student loan forgiveness is a serous topic of discussion

Student loan forgiveness remains a serious topic of discussion. The Biden administration is touting over $16 billion in student loan forgiveness that it has already approved.

Although this sounds like a large volume of debt cancellation, it amounts to a fraction of one percent of total outstanding student loan debt and reflects the administration's “targeted” approach to student loan forgiveness by expanding relief under existing programs.

Advocates for student loan borrowers have urged the administration to go much further and enact widespread student loan cancellation through executive action. So far, that hasn't happened, but White House officials have recently suggested that broader action is under consideration.

And while the discussions about the student loan pause and broader student loan forgiveness continue, millions of borrowers are still contending with disruptive loan servicing transfers.

Many borrowers who formerly had their federal student loans serviced by Navient are now with Aidvantage. And FedLoan Servicing, another major government loan servicer, is still in the process of transferring millions of borrower accounts to other Department of Education loan servicers, with the process expected to continue through the summer.

With so much change and uncertainty, it is a challenging time for student loan borrowers to plan for the future. Here are some tips.

1. Prepare for payments to resume — even if they don’t

Until we hear otherwise from the Biden administration, borrowers should proceed with the assumption that federal student loan payments are going to resume in May. It is better to have prepared for that contingency and wind up not needing to have done so than to be surprised by an unaffordable or unexpected bill.

Evaluate what repayment plan you were on before the payment pause went into effect in March of 2020, and determine your monthly payment at that time. You would likely be returned to the payment plan you were previously on once payments resume unless you had applied to switch plans during the last two years.

If you think you can no longer afford your regular monthly payments, it may be a good time to consider changing your repayment plan.

2. Special considerations for borrowers in income-driven repayment

If you were previously repaying your loans under an income-driven repayment plan, most loan servicers have pushed back the usual annual income recertification process by at least six months and, in some cases, into 2023. So unless you recertified your income during the payment pause, you might not have to do so again for quite some time. Contact your loan servicer for more information on your next recertification date.

Suppose you were in an income-driven plan, but your income has substantially decreased since the payment pause. In that case, you can request a recalculation of your income-driven payment before repayment resumes in May (or some future date, if there is a further extension).

The Education Department has temporarily streamlined the process and will allow borrowers to self-report their income by contacting their loan servicer or completing the online IDR application at StudentAid.gov.

3. Public Service borrowers may need to take steps now to qualify

Under the Limited PSLF Waiver announced in October 2021, hundreds of thousands of borrowers may have been able to get closer to loan forgiveness — or have their entire federal loan balance wiped out. Although the program expired on October 31, 2022, it temporarily relaxed several key requirements of the PSLF program, allowing past rejected periods of repayment for non-Direct Loans, or payments made under non-qualifying repayment plans, to be counted towards loan forgiveness.

The PSLF Waiver is no longer available, but borrowers can find many of the same benefits through the Department of Education's IDR Adjustment. Also called the IDR Waiver, it's a one-time account adjustment that can give you credit for past payments that didn't previously qualify for forgiveness.

For some borrowers, there is a limited time window to act — borrowers with commercially held FFEL debt will need to consolidate to take advantage of these benefits by April 30, 2024. Borrowers with federally-owned FFEL loans do not have to consolidate to get these benefits. 

4. Prepare for loan servicing changes

Regardless of whether federal student loan payments resume this May, millions of borrowers have either recently been transferred to a new loan servicer or will experience a loan servicing transfer in the coming months. Follow these steps to make sure you are prepared:

• Check your StudentAid.gov account. Confirm who your current loan servicer is.
• Review and update your contact information. This includes your mailing address, phone number, and email address for your StudentAid.gov account and loan servicer account.
• Review your auto-debit status. Borrowers who have experienced a servicing transfer may need to re-establish auto-debit with their new loan servicer. And many borrowers who haven't experienced a loan servicing transfer may still need to reaffirm their prior auto-debit arrangement when repayment resumes.

5. Hold off on refinancing

Borrowers who are considering refinancing their federal student loans with a private lender may want to hold off for the time being. Even in normal times, refinancing through a private lender carries risks, including loss of access to federal student loan programs and associated consumer protections, even with a lower interest rate.

But as long as the federal student loan pause continues, no private lender is likely going to offer the equivalent of a 0% interest rate. Also, a private loan wouldn't be covered by any further extension of the payment moratorium.

Furthermore, while it remains unlikely that the Biden administration will simply wipe out everyone's debt through executive action, additional student loan forgiveness initiatives could certainly be on the table. And absent Congressional involvement, any such initiatives would likely be limited to federal student loans only. Refinancing federal loans into a private loan could close the door on even the possibility of being eligible for such relief if enacted.

6. Hold off on federal student loan payoff

For borrowers in a position to pay off their federal student loan balances in full, it may be prudent to hold off on taking any action for now.

Given the possibility and potential of additional loan forgiveness initiatives or other student loan relief, as long as interest rates remain at 0% for government-held federal student loans, there is no cost to adopting a wait-and-see posture until it becomes clear that payments and interest accrual are resuming.