Here’s what you should know about the latest student loan pause extension

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The Biden administration just hit the snooze button again on the restart of student loan payments.

Now, millions of federal student loan borrowers have 90 extra days to figure out how to pay a bill they’ve gone nearly two years without.

“We are really relieved that the president changed course and that student loan borrowers don’t have to spend the holidays worried about how to make ends meet because of an unforced decision to send them student loan bills,” says Mike Pierce, executive director and co-founder of the Student Borrower Protection Center, a nonprofit advocacy organization.

Payments were supposed to restart beginning Feb. 1.

The interest-free pause has been in effect since March 13, 2020, the onset of the COVID-19 pandemic. It allowed federal student loan borrowers with an amassed $1.61 trillion in debt to prioritize other financial needs like paying rent or padding emergency savings.

Payments now restart beginning May 2. Borrowers should use the additional time to ensure they have a plan to resume payments or arrange a payment plan they can afford.

What led to the extension?

The pause has been extended four times. If payments restart in May, borrowers will have had a total of 25 payment-free months.

Betsy Mayotte, president and founder of The Institute of Student Loan Advisors, a nonprofit student loan help organization, welcomed news of another extension but worries about the potential to create a “cry wolf” phenomenon.

“[It] makes me worry a bit about when the repayment does start: Will folks be less likely to be prepared?” says Mayotte.

Notably, the Dec. 22 announcement from the Department of Education did not use the word “final” with this extension, as it did in August.

In the past few weeks, a long-standing campaign to deal with student debt won new urgency as the omicron coronavirus variant emerged and inflation surged. Survey after survey found many borrowers worried about their ability to pay.

“I think the pressure from advocates, borrowers, lawmakers and bipartisan voters was too overwhelming to ignore; I think that speaks to the severity of the crisis,” says Braxton Brewington, press secretary for the Debt Collective.

The added time offers borrowers another chance to make a plan for their loans. Barring further extension or en masse forgiveness, borrowers have the following options available.

Step 1: Call your servicer

Notifications about the restart had been hitting borrowers’ inboxes for weeks before the announcement.

Student loan servicers, the private companies that manage student loans, were in the midst of hiring and training staff in preparation, according to Scott Buchanan, executive director of the Student Loan Servicing Alliance.

The newest extension surprised servicers, Buchanan said, but they still face a big challenge even with the extra time: Getting their customer service workers up to date on a complicated student loan repayment system and providing accurate help to millions of people.

Borrowers can beat the rush. You’re likely to face high call volumes and long wait times with servicers closer to the start date.

Before payments restart, find out who your servicer is. Log in to the federal student aid site, contact your servicer about your options and compare any information you receive to the federal student aid site.

Your servicer can help you with any of the options below.

If you need a lower payment

If you expect to have trouble making payments due to your income, consider an income-driven repayment plan. These plans cap your payment at a portion of your income and extend your repayment term; at the end of that period your debt is forgiven. If you have zero income, your monthly payment amount will also be zero.

Temporarily, through July 31, you can self-certify your income, which means you won’t have to file the income-driven repayment plan paperwork usually needed to confirm your income until you recertify. Those already enrolled prior to the pause will need to recertify beginning in August 2022. But if your income is lower now than it was before the pause, recertify as soon as possible. It’s unclear if the pause will extend these temporary provisions.

If you want to keep paying

You can continue paying down your student loans, but you’ll have to contact your servicer to submit payment.

Mayotte says the extension will especially benefit those who take advantage of the 0% interest rate to pay down their loans or other debt.

If you expect you’ll need an additional break

You can apply for an additional pause if you need it: an unemployment deferment for up to 36 months or a hardship forbearance for up to 12 months at a time. But unlike the current pause, interest will accrue and be added to the total you owe when you do start paying again.

If your loans are in default

If your loans were in default prior to the payment pause, getting back into good standing immediately will require you to pay your entire student loan amount, in full, which is unrealistic for most borrowers.

A more practical plan is student loan rehabilitation, which requires making nine consecutive monthly loan payments in 10 months equaling 15% of your discretionary income, then entering into an income-driven repayment plan. If you start loan rehabilitation now, which you can do during the pause, you’ll be that much closer to being back in good standing.

If you think you might miss future payments

When you miss enough payments — 270 days — your loan goes into default, resulting in negative effects including collection activities and damaged credit.

To avoid this outcome, enroll in a repayment plan that’s affordable for you, and sign up for autopay so you never miss a payment. If you were enrolled in autopay prior to the payment pause, you must reaffirm you would like to reenter into autopay. As a bonus, autopay will save you 0.25 of a percentage point on your interest.

If you’re waiting on loan forgiveness

Student debt advocates like Pierce and Brewington say they welcome the pause but are hoping widespread forgiveness is on the way.

“This is a major win, but there’s so much to go from here,” says Brewington. “We need full cancellation. Our economy, families and communities need full cancellation.”

Biden has not committed to broadly forgiving student debt via executive order; he indicates he would sign any legislation that passes through Congress. Right now, there’s nothing imminent.

Targeted debt relief worth $13 billion via existing forgiveness programs has reached more than 640,000 borrowers, the White House says.

For those seeking Public Service Loan Forgiveness, the additional three months of nonpayment will count toward the 120 needed for forgiveness so long as you’re still working full time for an eligible employer.