President Biden extended the student loan repayment freeze again.
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Federal student loan debt holders have an additional three months to plan for the repayments to start.
Wednesday’s announcement by President Joe Biden was that his administration would extend the student loan repayment freeze to May 1, 2022. In what was previously called the final extension, payments were set to resume after January 31, 2022.
This means that interest rates will remain at zero and payments won’t resume until spring next year. According to a survey conducted by The Pew Charitable Trusts in January, two-thirds of borrowers stated that it would be difficult to afford the next month’s payments.
FutureFuel.io founder and CEO Laurel Taylor says, “What a wonderful opportunity for borrowers, to take more control over their finances.” I encourage borrowers to take advantage of this opportunity, whatever it means to them.
What to do in the Light of Biden’s Extension of Student Loan Relief
This latest update may make it a good time for you to review your student loan repayment strategy. Experts who spoke with us suggest what to do following the extension of student loan payment freeze.
If you’ve experienced job loss or a decrease in income
This is a time to allow yourself to take care of other financial priorities. If you are unemployed or have a decreased income in the past year, focus on paying your essential expenses such as rent, mortgage payments, groceries, and transportation.
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This relief is for people who have lost their job or experienced a drop in income. They should focus on their essential living expenses, and not worry or feel guilty about saving money for student loans. This time is yours,” Cindy Zuniga Sanchez, personal finance coach, founder of Zero-Based Budget (an Instagram financial education platform), says.
If you still have a job or income,
These extra months can be used to divert money towards an emergency fund, or to pay higher-interest debts such as student loans or credit cards.
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“Nobody should be making extra payments on their loans at this point. Farrington says that even if you can, it is best to save the money and get rid of other debts.
Prioritize building an emergency fund if you don’t have one. Set aside at least three to six months’ worth of expenses. Don’t be discouraged if this seems impossible. Start small and work your way up. Next, you can focus on paying off high-interest debt. These strategies can help. You can also invest extra funds in retirement accounts such as a 401k, IRA or Roth IRA or pay down lower-interest debt such as medical debt and a car loan.
If you are behind on student loan payments
All collection activities will resume after the extension ends. It is important to get your loans rehabilitated as soon as you can. When a payment is more than 270 days late, default on federal loans can occur. This will send your loans to collections, which could lead to garnishment of wages and damaged credit.
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Farrington says, “Get out from default so that payments and collection activity can resume, you’re no longer getting your wages garnished or taxes garnished.”