Americans worried about the resumption of federal student loan payments in October stopped sweating after President Joe Biden’s administration decided to extend the freeze on payments and interest for another four months.
That means the roughly 42 million federal student loan borrowers are off the hook until Jan. 30, 2022. Biden’s Department of Education warned that this was the “final extension” of a break on student debt in place since March 2020.
If you have student loans and your finances have held up fairly well during the pandemic, take advantage of these recent months of moratorium to erase as much of that debt as possible.
Here are three ways to help you try to reduce your student loan debt before payments start again.
1. Make payments, even if you don’t have to
While it can be tempting to stay “on break” from your student loans until February, continuing your regular payments – and even paying more than your usual minimum – is a good idea, if you can afford it.
Since the interest rates on Federal Student Loans are frozen at 0%, any payments you make now will go entirely to the principal amount of your loan.
This means that you may be able to withdraw a good chunk of your loan balance. When student loan debt was frozen last year, the typical balance was $ 20,000 to $ 24,999, according to Federal Reserve data.
Resuming your payments sooner is probably out of the question if you have other debt, like running out of credit cards during a period of unemployment last year. U.S. Education Secretary Miguel Cardona mentioned in an interview last week that officials were hoping to find other ways to ease the burden on student loan borrowers, but in the meantime you might want to use this time to tame those debts with the help of an interest-rate debt consolidation loan.
2. Look for a new repayment plan
You could erase your student loan debt faster by changing your current payment plan, especially if the pandemic has reduced your income and you still haven’t come back.
The government offers income-based repayment plans that allow borrowers to make more affordable payments, based on what they earn. After you have made 20 or 25 years of regular payments under an income-oriented plan, your remaining debt will be canceled.
This may be your best chance to cancel some of your student loans. President Biden has campaigned to write off $ 10,000 in student debt per borrower, and Major Democrats are urging him to go to $ 50,000 – but it is now questioned whether Biden has the power to write off massive student debt.
A simple step to saving money with a federal student loan is to enroll in automatic payment, as enrolling in automatic deposits will allow you to benefit from an interest rate reduction of 0.25% when payments will resume.
3. Refinance private loans
If your student loans are from a private lender, not the federal government, the longer payment break does not apply to you. But you can tackle your student debt over the next few months by refinancing your loan, as interest rates on refi student loans from private lenders have been at all time lows.
Your eligibility for refinancing will largely depend on your current credit score and income. If you are unsure of your score, it’s easy to check your credit score for free online.
Even if you lost your job due to the pandemic, you may be eligible for a refi if you can show investment income or income from a side gig, or find a co-signer to support your application. To get the best rate for refinancing a student loan, you will need to shop around and compare quotes from several lenders.
Remember that refinancing is not an option if you have a federal student loan, and replacing a federal loan with a private loan will make you ineligible for any other government loan relief measures.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.