Student Loan Repayment Freeze Extended to August 31

President Biden announced that pandemic relief for federal student loan borrowers was extended once more until August 31, 2023, or 60 days after the student loan debt relief program litigation is resolved.^[1] 

The pause on student loan payments and interest provided much-needed relief for many borrowers and helped them stay afloat during the financial uncertainties these past two years have brought. 

Let’s take a look at the details of the student loan relief, and explore some ways to take advantage of it, while preparing for federal student loan payments to resume.

What You Need to Know About the Student Loan Freeze

Federal student loans have been in deferment since former President Trump passed the CARES Act in March 2020.^[2] Student loan deferment means all payments and interest are temporarily frozen.

This act gave borrowers welcome relief from their student loan debt amid the financial uncertainty of COVID-19. The act has since been extended multiple times and is currently set to expire on August 31, 2022. 

Given the latest update, you should expect to start making payments again on your student loans after August 31. Instead of hoping for another student loan freeze, use this time to rethink your student loan strategy and decide how to make the best of the time left.

How to Prepare For the End of the Student Loan Freeze

You can take some actions now to help lighten the load before September 1 hits and your student loan payments return. By being proactive, you’ll know what to expect and can have your finances organized and ready to manage another expense. 

We’ve listed a few things to put on your to-do list.

Review your loan information

Log into My Federal Student Aid and spend some time checking the details of your federal student loans. You’ll want to confirm that you still have an account with your loan servicer and update your contact information. 

Then, take stock of your current student loans. Look for your total balance, any repayment details and loan terms, so you’ll know what to expect come August 31. 

Make a budget

Now that you know what your first payment will be and have a grasp on the total picture of your student loans, it’s time to budget for the payments. You’ll want to set aside enough money to make your monthly payments in full and on time. 

Look at your current income and bills and figure out how much is left over each month. Do you have enough to cover your student loan payments? If not, explore options for how you can tighten your spending or increase your cash flow.

Seek a new repayment plan

If you absolutely can’t afford the student loan payments, then consider applying for a new repayment plan. You could switch from the standard repayment plan to an income-driven repayment plan. 

This plan adjusts your monthly payments to be between 10% and 20% of your discretionary income and forgives what’s left after 20 or 25 years of making payments.^[4]

How to Take Advantage of the Student Loan Freeze

You have some options that will help you get the most out of the current federal student loan freeze. Spend the time between now and August 31 making smart financial decisions that will help you in the long run. Check out some ways you can use this time to your advantage. 

Prioritize other financial goals

Take this opportunity to work towards other financial goals. You may have credit card debt, need to save for a replacement car or have a different goal. Whatever it is, you can put the money you would spend on student loan payments towards your other goals before the freeze ends in August.

Make payments (even though you don’t have to)

Usually, the interest collected is added onto your loan balance, and that new, larger number collects even more interest. This concept is called compound interest, and with loans, it can really build up over time. You can combat this and save on interest by making some payments while interest on your federal loans is frozen.

Because your federal student loans aren’t earning interest during the freeze, any amount you can pay off now will lower your loan balance in the long run. And that’s a good thing.

Build (or replenish) your emergency fund

Having extra cash stashed in an emergency fund is a necessity. It can help you afford those unwelcome and unexpected expenses that can drop in out of nowhere. These costly surprises often show up as sudden medical expenses or car problems, but they can be anything.

Take advantage of the student loan freeze by saving the dollars you would usually spend on your student loan payments. Set this money aside in a savings account to help you pay for any emergencies that may come your way. 

Rehabilitate your student loans (or get out of default)

If you didn’t make your federal student loan payments before the freeze went into effect and are now in student loan default, you can use this time to fix it. 

Since collections on defaulted federal student loans were also paused, you have some time to nurse your loans back to health without consequences. 

The U.S. Department of Education (ED) offers two options: rehabilitation and consolidation. Completing either of these options will lift your loans out of default.

• Loan rehabilitation: This is a program where you promise to make nine, on-time payments within 10 months.^[3] The ED will work with you to make sure they’re reasonable and affordable. However, you are accountable for staying on top of the payment schedule. This is a one-time chance to get your loans out of default. 
• Loan consolidation: Before you can apply for a direct consolidation loan (combine multiple federal loans into a single loan) for your defaulted loans, you must make three, on-time payments. However, once they’re made, you can consolidate your loans under an income-driven repayment plan. The ED will choose a reasonable payment, usually between 10 and 20% of your discretionary income.^[3]

Use Your Free(ze) Time Wisely

However you choose to use this time, keep in mind that your student loan payments will resume after August 31. So be proactive and use your money wisely now to set yourself up for success when it comes to paying off your student debt.