Student Loan Relief Was Extended Through Jan. 31. Here’s What to Do Now

Photo to accompany story about student loan relief extensions. Getty Images

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Good news came for millions of student loan borrowers over the weekend. 

The outgoing administration extended its pause of student loan payments through Jan. 31, which means borrowers have an extra month to save, adjust their budgets, and reassess payment plans. 

“The pandemic is not over, and we don’t know when things will start to return to normal, so I think it gives borrowers a sense of ease knowing that they have more time,” says Jessica Ferastoaru, a student loan counselor with Take Charge America, a national nonprofit credit and student loan counseling agency. 

The extension applies only to federally-held loans, and includes the pausing of interest accrual and the suspension of collections on defaulted loans. The deferment was originally set to expire on Dec. 31. 

Most provisions of the CARES Act passed in March will still end on Dec. 31, including the expiration of several economic relief programs enacted by Congress, local, and federal agencies. Senators and representatives from both parties unveiled a new bipartisan $908 billion stimulus package last week; negotiations are continuing. It could be the last chance Congress has to pass a coronavirus relief bill in 2020.

Unless a new stimulus package is passed, it remains unclear what will happen for student loan borrowers after Jan. 31. 

“The student loan relief we’ve seen over the course of the last eight to nine months is quite different than anything that we’ve ever seen in relation to student loans before,” says Ferastoaru. “Most borrowers I’ve talked to are just waiting to see what’s coming next.”

There’s no guarantee that additional help is on the way, so here’s what you can do to prepare as the end of student loan forbearance nears.

Should You Pay Off Student Loans Right Now? 

Borrowers don’t have to make payments through January 31, but are still able to do so.

If you’re still employed and have the financial means at this time, you could get a head start and make payments towards your federal student loans. Because the interest rate is 0% through the end of January, now is a great time to reduce your principal balance. If you can reduce your principal balance during this period, you’ll save more money in the long run, since you’ll pay interest on a smaller amount of money.

“We don’t come across too many borrowers who are trying to more aggressively pay down their student loans debt, but we certainly recommend it as an option if they’re financially stable and in a good spot. It’s a great opportunity to save some money on interest,” says Ferastoaru.

But don’t feel the need to pay off your federal student loans too aggressively in the next year, just in case more federal relief comes, writes Farnoosh Torabi, contributing editor at NextAdvisor and host of the “So Money” podcast.

The Biden-Harris administration has proposed a $750 billion education plan with several initiatives that are helpful for borrowers and future college students.

The plan includes forgiving $10,000 in student debt for every year of national or community service — up to five years — under the Public Service Loan Forgiveness Program, and making public colleges and universities tuition-free for all families earning less than $125,000 a year. 

Under the plan, individuals making $25,000 or less per year would not owe any payments on their undergraduate federal student loans and also wouldn’t  accrue any interest on those loans.

“There’s a lot that’s been proposed and a lot to give us hope,” Torabi says. “But I think the smart money move still bets on the individual. What I mean by that is we still need to hold ourselves accountable for our finances.” 

Take Advantage of the Extra Month to Save and Plan

While federal student loan forbearance provided financial relief for struggling borrowers, it was never intended to last forever.

Now that student loans are paused until the end of January, you can use that extra month to save and come up with a plan that takes into account your loan status, current employment, and income. 

“Prepare for payments starting by trying to get your loans on an affordable repayment plan if they’re not already, and resolve any defaulted student loans,” says Ferastoaru. 

Reach out to your loan servicer(s) to discuss your options and figure out what’s the next best course of action for you come January. There are also tools on the Department of Education website that can help you.

It may be a good time to explore income-driven repayment options, which cap your loan payment based on your income and family size. If you don’t qualify for an income-driven repayment plan and can’t afford your payment, ask your servicer about additional deferment or forbearance, says Ferastoaru.

“If relief is extended, that may be a good time to either save and build your emergency fund,” says Ferastoaru, “or target some debt with higher-interest rates like credit cards.”