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'Waiting with bated breath': How student loan borrowers should prepare for Trump's forbearance period to end this December

A Biden presidency signals hope for student loan forgiveness, but payments could still resume in January 2021. Here's how to prepare.

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President-elect Joe Biden has gone on record saying he will forgive student loans and extend coronavirus relief in 2021. But if your federal student loans are currently in forbearance under the Trump executive order, you should still prepare for repayment to resume in January. Nothing is guaranteed until Congress passes new legislation.

"From a financial planning perspective, a good way to stay ahead in general is to plan for the worst case scenario," says debt-relief lawyer and mother of five college students, Leslie Tayne of Tayne Law Group.

While it may sound pessimistic, being over prepared will help you no matter what 2021 brings.

Ahead, Tayne gives her advice on what to do if you have to start repaying your federal student loans in 2021.

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President Trump's coronavirus executive order extended interest-free federal student loan forbearance through Dec. 31, 2020. If nothing changes, most federal student loan payment plans, including subsidized and unsubsidized loans, will resume in Jan. 2021. At that time, you'll either start paying the same amount you used to pay each month, or you might see an adjusted rate depending on your issuer and repayment plan.

But that all could change depending on the new administration.

Throughout his presidential campaign, Biden promised to cancel up to $10,000 of student loan debt, and even more for people working in the public sector. Of course, these proposals will have to go through the legislative process, so they likely won't happen on day one of Biden's presidency.

In the current lame-duck period, Trump is less likely to extend the existing student loan forbearance program into 2021, despite millions of student loan borrowers needing the support.

"If I was a student loan holder of any kind, even of private loans, I would be waiting with bated breath about what the end result is going to be," says Tayne.

Even though some are optimistic that Biden's student loan plan will lessen the burden for many borrowers, it's likely you'll need to resume repaying your federal loans as early as January 2021.

Plan well ahead

Come December (if not already), you'll likely receive an automated email from your student loan servicer reminding you that payments that will resume in January.

Tayne suggests you be proactive and contact your servicer now, or simply log into your account and check your repayment schedule or your inbox for notices about what to expect.

If your servicer gives you a date that you can expect payments to resume, Tayne says to mark a reminder on the calendar a few weeks ahead of time so you don't miss it.

Modify your budget according to best- and worst-case scenarios

If your loans were in forbearance for the better part of 2020, you should make sure you're aware of what the highest and lowest possible amount your new monthly payment could be when things begin again in January.

In some cases, you might owe the same monthly amount as before. But if you were enrolled in an income-based repayment plan that's scheduled to recalculate every year, double check to see if your payment will increase or stay the same. Your recalculation date may have been moved back by six months to align with the executive order, but it's important to confirm with your servicer before you assume that will be the case for you.

You may even need to recertify, or resubmit your tax returns to calculate a new appropriate amount. This process may take a month or two to complete.

Once you have an idea about what your monthly payment is projected to be in January, take a look at your budget to see how this added cost will impact your spending.

No matter what, being prepared is crucial: If federal loan forbearance is extended after Biden takes office, you might decide you want to pay anyway so you can lower your total debt while avoiding interest charges. Or you might want to stash that extra money in a high-yield savings account like the Vio Bank High Yield Online Savings Account to build up an emergency fund.

Don't miss: Here are the 5 best brick-and-mortar savings accounts of November 2020

What to do if interest-free forbearance continues

If the current student loan relief continues into 2021, you have some options about what to do with the money you would put toward your loans.

"I recommend that anybody who has the ability to comfortably do it — without jeopardizing long-term savings — pay down their loan principal," says Tayne. "Even if you can only afford $25 a month, then pay $25."

Small payments toward your federal loans can go even further right now while the interest rates are at 0%.

"Ultimately, 100% of your payment is going toward the principal," explains Tayne, so your payment goes even further to paying off your total debt.

The one exception to Tayne's suggestion is if you are currently paying off a credit card.

"If you have high-interest credit card, my recommendation would be to take money from what you're paying on your student loans to pay down your card. Once you have your high-interest debt under control, continue to put as much money as you can toward your interest-free loans and get that paid off."

Whatever you decide to do, it's important to consider your whole financial picture, from savings to salary to debt, so you can make the smartest money decisions for your own needs.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.