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Student loan borrowers have a bit longer to put off repayment as President Biden on Wednesday pushed back the federal student loan moratorium until Aug. 31. This extension means over 43 million Americans can put off repaying their federal student loans even longer without accruing any additional interest.
This was surprising to some as the United States continues to ease pandemic-related restrictions along with many Americans returning to work. But for those grappling with the economic repercussions of the pandemic as well as record-high inflation, it gives a bit of breathing room for the moment.
But with less than 150 days until the next deadline, consumers shouldn't get too comfortable as payments will eventually resume.
Select details what steps consumers should take amid the extension, and how consumers should prepare to eventually repay their debts in the meantime.
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The extensions in the student loan moratorium have been quite helpful for the 43 million Americans who owe the federal government a collective $1.6 trillion. The newest extension is a relief but borrowers shouldn't rely upon more extensions — instead they should start preparing to begin repayment.
Andrew Pentis, a student loan expert tells Select borrowers should "start planning for August, September and beyond, don't wait. This way, when payments resume, you will already have a plan in place to ensure that you avoid late or missed payments and are working strategically toward ending your debt."
Pentis also says there are several steps borrowers should take to ensure their eligibility for the student loan moratorium, as well as preparing for the payment freeze to eventually end.
What you should do between now and Aug. 31
Pentis recommends first to "contact your federal loan servicer to confirm your ongoing eligibility for the pause and discuss options for handling repayment once the moratorium ends. If your servicer is not especially helpful, take on the research yourself or work with a certified student loan or credit counselor at an accredited nonprofit counseling agency."
If you decide to work with a student loan counselor or agency, it's important to ensure they're fully certified as there are many student loan forgiveness scams.
After this, he urges borrowers to "get your financial house in order." This includes prioritizing things like filling your emergency fund in a high-yield savings account like Ally Online Savings Account.
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You'll also want to educate yourself on all your repayment options, improving your credit score, monitoring your credit score and paying down any other high interest debt. Consider a free credit monitoring service, like from Experian, to keep tabs on what debts you owe and how they're affecting your credit score. Some may even consider investing over paying back their student loans while interest isn't accruing.
For the time being while payments aren't required and interest isn't accruing, Pentis stated that for those in a financially solid position, "it could make sense to get aggressive with extra payments or even consider student loan refinancing to score a lower APR." If you pay more towards your student loan balance now while interest isn't accruing you should be able to save more in the long term: when the moratorium ends the interest is accruing will be on a smaller principle balance, meaning less interest charges overall.
If you're considering refinancing your federal student loans it may be best to wait until the moratorium is over. If you were to refinance your federal student loans they would become serviced by a private lender, and while you may receive a lower interest rate, these private student loans don't qualify for the moratorium. If paying down your debt or refinancing aren't possibilities, an income-driven repayment plan or pursuing student loan forgiveness could be worth it.
However if you already do have private student loans then refinancing may be a good option, as it can save you thousands of dollars in interest charges. Select ranked SoFi Student Loan Refinancing as the best overall student loan refinancing company for its lack of application and origination fees and other benefits.
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Read more on student loan refinancing
Biden intended to end the moratorium months ago, but an uptick in Covid-19 infections caused an extension. And even though some lawmakers have asked to extend it through the end of 2022, with preference to cancel student debt in-full — forgiveness has made no headway on Capitol Hill.
"Borrowers should definitely not hold out hope for [forgiveness] and should go about their business as normal," says Pentis.
So if you have student loans and benefitting from the moratorium, it's best to create a plan to begin repayment once the moratorium lifts. By doing that, you can feel confident that you can crush your student debt once and for all.