How to Prepare for the End of COVID Student Loan Forbearance

Since March 2020, student loan borrowers have been given a break from paying their federal student loan payments. When the COVID-19 pandemic hit the U.S., the government passed the CARES Act, a federal stimulus package designed to bolster the economy. It gave student borrowers financial relief by placing their payments in forbearance and slashing interest rates to 0 percent.

That pause on payments has been extended several times, most recently in late December 2021 with student loan forbearance now scheduled to end on May 1, 2022. That gives borrowers time to prepare before they need to resume making loan payments sometime after May 1. Here’s what to know — along with some tips if you’re still struggling financially.

Create a new budget with your student loan payment

Start by logging into your loan servicer’s portal to review your payment due date, payment amount, and interest rate. If you don’t recall who your servicer is, you can find out by logging into your account at studentaid.gov.

Next, review your income and monthly expenses. You may need to make adjustments in other expense categories to account for your loan payment and bring your expenses in line with your income.

Read all correspondence from your loan servicer!

Watch for paper statements and emails in the next couple of months and be sure to respond if it’s required. If you moved or changed your email or phone number during the student loan pause, be sure to update your contact information in your loan servicer’s portal and the studentaid.gov portal.

Re-authorize auto-debit

If your loan payment was auto-debited, it may not start again automatically. If you haven’t made any payments during the student loan forbearance period, you’ll need to re-authorize your loan servicer to resume auto-debit payments. Some servicers may allow you to set it up and authorize online — check your servicer portal to see what’s allowed.

Determine if you need a reduced payment

If your income is lower than it was before the pandemic, the first step is to explore options for adjusting your student loan payment for your lower income level. You may qualify for a reduced payment through an Income-Driven Repayment Plan (IDR).

Log into your studentaid.gov account and find the loan simulator. Run the simulator to see what your loan payment would be on different IDR plans and which ones you’re eligible to use. If you find a plan that offers a more affordable payment, you can apply through studentaid.gov or contact your loan servicer.

If you were already on an IDR plan before the pandemic but your income has decreased further, you don’t have to wait for your annual recertification date to recertify to a lower payment. You can ask your servicer to review your current income for a new payment. There’s an IDR application process at studentaid.gov.

An income-driven plan can help even if you’re unemployed

Even if you’re unemployed (or have a very low income), IDR plans offer relief. Some plans offer payments as low as $0 and still count as a payment. Also, on some IDR plans, the U.S. Department of Education subsidizes (pays for) the interest for the first three years — or even indefinitely, depending on whether you have subsidized or unsubsidized loans. Income-driven plans are worth exploring as a first option. Use the loan simulator at studentaid.gov or contact your loan servicer for help.

Consider another type of postponement

If an IDR plan does not work for your situation, the next option to explore is deferment. That’s a temporary postponement of payments. There’s also forbearance, a temporary reduction or postponement of payments. Your eligibility for either will depend on the type of hardship you’re experiencing.

Generally, deferment is available to borrowers coping with economic hardship, unemployment, cancer treatment, or being called to active-duty military service. Forbearance is available for financial difficulties, medical expenses, change in employment, or other reasons your loan servicer will consider.

For borrowers with subsidized loans, deferment is preferable to forbearance because interest doesn’t accrue on subsidized loans. It does accrue on unsubsidized loans, however, and on all loans in forbearance status. To qualify for either, you’ll need to determine the eligibility criteria and consider if the temporary postponement helps more than an IDR plan.

Review eligibility criteria at “Get Temporary Relief” on studentaid.gov or contact your servicer to discuss. It’s best to reach out before May 1, 2022, to ensure any changes are determined before payments are due.

Student loan forgiveness eligibility

You might be eligible for federal student loan forgiveness or discharge under a few different programs or circumstances, but it’s all in the details. Usually, forgiveness is tied to working for a certain kind of employer, like an eligible 501c3 nonprofit, or working in a public service job.

One program is Public Service Loan Forgiveness. The PSLF program forgives the remaining balance on certain federal loans after borrowers make 120 on-time payments in a qualified IDR plan. As part of the CARES Act, the federal government gave borrowers credit for each month of loan forbearance as if they were making payments toward both the PSLF program and the IDR plans. In other words, all those months of no payments since March 2020 count as payments for PSLF.

Another program is Teacher Loan Forgiveness. If you’re working toward that, the CARES Act waived the requirement that your teaching service be consecutive years of service if your service was temporarily interrupted because of the pandemic.

Finally, if you were permanently and totally disabled during the suspension, you may complete a Total and Permanent Disability Discharge application via DisabilityDischarge.com.

More Budget Impact: Child Tax Credit expiration

The expanded Child Tax Credit under the American Rescue Plan expired on Dec. 31, 2021. This means if you’re a borrower with children at home, you won’t continue to receive $250-$300 per child per month — unless there’s additional action from Congress. That loss may impact your budget significantly. It’s important to create a budget that accounts for your student loan payment’s added expense as well as the possible loss of child tax credit payments if they end.

Tackle non-student loan debt

Finally, if credit card debt is taking up a significant portion of your monthly budget, consider focusing on repaying this debt – particularly if you have limited options for your student loans. A debt management plan can help accelerate your repayment and create significant savings in the process.

Whichever path you choose, be sure to act quickly and not wait until you’ve begun to feel overwhelmed by your debt payments.