What you need to know when the pause on student loans is about to expire

College students heading to campus this fall may be confused by recent headlines about student debt and wonder: Does any of this affect me?

Will the pause in student loan payments that began early in the pandemic be extended? Will any student debt be erased?

“It’s a very confusing time,” said Regan Fitzgerald, manager of the Pew Charitable Trusts’ project on the success of student borrowers.

Here is a summary of what is known and unknown, and what students should consider.

The payment and interest pause on most federal student loans is scheduled to end on August 31. An extension would have less of an impact on students who are still in school because they aren’t yet paying off their loans, financial aid experts say. (However, even borrowers in school are benefiting from the pause in loan interest.)

And while it remains unclear whether the Biden administration will act to forgive some of the student debt, any relief may be limited. It may be targeted at borrowers with incomes below certain limits and loans borrowed before a certain date (possibly before June 30 of this year, according to Politico), suggesting that students who borrowed as recently as the academic year 2021-22 could benefit. But until the plans are announced, “we’re not sure what the parameters will be,” Fitzgerald said.

In an emailed statement, a Department of Education spokesman said the department’s “broad-based debt write-off review remains ongoing and no decisions have been made.”

Because the rules seem to be constantly changing, it’s important for borrowers to keep up with student loan options and policies, Ms. Fitzgerald said. “Financial awareness about student loans is very important,” she said.

Students who are borrowing money for the fall should focus on what they need instead of speculating on whether any debt can be erased, said Michele Streeter, associate director for policy and advocacy at the Institute for College Access and Success, an organization nonprofit that promotes college affordability. .

“I would strongly recommend that no one borrow on the assumption that any loans will be forgiven in the future,” said Ms Streeter. “If I were a borrower, I would turn off the noise and focus on what I need to borrow right now.”

Mark Kantrowitz, a financial aid expert, advises students to borrow “only what you need, not as much as you can.” Your total debt upon graduation should be less than your anticipated annual starting salary, he said, ideally “much less.”

Abby Shafroth, an attorney with the National Consumer Law Center, said students rightly worry about borrowing too much, but they should also be careful about borrowing too little. “You don’t want to borrow less but then not have enough for books,” she said.

The Consumer Financial Protection Bureau offers tools on its website to help determine how much you can safely borrow based on your financial situation and expected income after graduation.

Here are some questions and answers about student loans:

On July 1, federal student loan rates for college students increased to 4.99 percent for loans made through June 2023. Federal loan rates are set each spring based on a formula and apply to all new loans made during a given academic year. The rate is fixed for the life of the loan. So if your loan rate for the last academic year was 3.73 percent, that won’t change. (The rates on most student loans are temporarily set to zero during the payment break; regular rates are expected to apply when the break ends.)

In general, dependent students can borrow up to $5,500 in federal loans the first year, $6,500 the second year, and $7,500 each of the third and fourth years, with a total limit of $31,000 (in case it takes longer to graduate) . Borrowing limits are higher for independent and graduate students. Parents can borrow so-called Plus loans, at higher interest rates, if additional financing is needed. (Private lenders also offer student loans, but the loans lack the consumer protections of federal loans and are not included in the payment break.)

It seems increasingly likely as the August deadline approaches with no announcement of plans to restart payments. “I would say there is very likely another extension,” Ms Streeter said. Mr. Kantrowitz said that he thought the hiatus could extend into next year.

Loan servicers, the companies that send out statements and manage borrower payments, have received “strong guidance” from the Department of Education not to notify borrowers about resumed payments, said Scott Buchanan, director executive of the Student Loan Servicing Alliance, an industry group. If the pay break isn’t extended, he said, “we lose the opportunity to prepare for it.”

The New York Times offers a guide to help borrowers prepare for repayment.

A spokesman for the Department of Education said it would communicate directly with borrowers about the end of the payment break when a decision is made, adding that President Biden has indicated that will happen at the end of August.

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