How to Prepare for the End of Student Loan Forbearance During COVID-19 Pandemic

By |2020-07-27T07:24:33+00:00July 27th, 2020|

The Coronavirus Aid, Relief and Economic Security Act temporarily placed federal student loans in forbearance, pausing payments and interest accrual through Sept. 30 of this year. Without further federal intervention, payments resume in a few short months. While it’s possible the forbearance might be extended, borrowers should start preparing to resume payments this October.

If you’ve temporarily stopped making student loan payments, here’s how to prepare for the end of student loan forbearance.

1. Prepare Your Budget

Removing your student loan payments from your budget probably gave you a little extra financial cushion to work with. To prepare for payments, you should plug your monthly payment amount back into your budget to see how it affects your income and expenses. If you need to adjust priorities to afford your payment, running different scenarios now can be helpful.

If possible, it might make sense to put a little money aside in savings to make transitioning to payments easier in October.

2. Evaluate All Repayment Plans

There are plenty of options for federal student loan repayment. You can change your plan at any time for free with your loan servicer. You should start evaluating your options now; there are eligibility requirements and stipulations for each repayment option. Available plans include:

  • Standard Repayment Plan: Payments are set at a fixed amount to pay off your loan in 10 years (10 to 30 years for consolidation Loans).
  • Graduated Payment Plan: Payments start lower and increase over time, generally every two years, to pay off your loan in 10 years (10 to 30 years for consolidation loans).
  • Extended Repayment Plans: Payments are fixed or graduated to pay off your loan in 25 years.
  • Revised Pay As You Earn Repayment Plan (REPAYE): Payments are set at 10% of your discretionary income. You must certify your income and family size each year. In most cases, your spouse’s income and debt are considered if you’re married. Any outstanding debt is forgiven after 20 years for undergraduate study, or 25 years for graduate or professional study.
  • Income-Based Repayment (IBR): Payments are set at 10% or 15% of your discretionary income depending on when you received your loans. You must certify your income and family size each year. Your spouse’s income and debt may be considered if you file a joint return. This option is for borrowers with high debt compared to their income. Any outstanding debt is forgiven after 25 years.
  • Income-Sensitive Repayment Plan: Only for Federal Family Education Loan Program loans that are not eligible for Public Service Loan Forgiveness, this plan bases your payment on annual income to be paid within 15 years.
  • Loan Consolidation: You may be able to combine multiple student loans in a single loan with a fixed interest rate, but this option may cause you to lose some benefits. Read the Department of Education’s guide to the pros and cons of consolidation.

3. Follow the News

The government is still at work on the next coronavirus stimulus package. Many ideas have been floated, including an extension (or expiration) of forbearance, forgiveness up to a certain amount of debt and a new version of income-based repayment.

While you should start preparing to resume your payments for now, it’s possible that the government may pass some further form of relief. Continue to follow the news to see how you may be affected.