As the coronavirus pandemic forced millions into unemployment and financial uncertainty in March 2020, federal student loan payments were put on pause and interest rates were set at zero. In August, the Biden administration issued one more “final extension” of the federal student loan payment pause to January 31, 2022. But in February 2022, millions of borrowers will have to start repaying their loans once again – many for the first time in nearly two years.
More than 42 million people had federal student loans of some form as of fall 2021, amounting to nearly $1.6 trillion in student loan debt, according to Education Department data. That includes more than 36 million with direct loans totaling more than $1.35 trillion.
“It’s a major endeavor, and we’re doing everything we can to get the word out to make sure that borrowers are prepared for when loan payments start in February,” Under Secretary of Education James Kvaal told CBS News. The Education Department is already working to reach more than 30 million borrowers about the change.
As millions head into repaying their loans, the most important thing officials and experts say borrowers can do ahead of the pause ending is make sure their contact information is up to date. Borrowers can expect to see several communications leading up to the deadline, but having their address, email and phone numbers up to date is vital for receiving any and all information.
Borrowers between now and the end of January should also examine their current budgets and decide what they need to do, so they can be ready to make regular payments once again toward their federal student loans, experts say.
A group of Senate Democrats have asked President Biden to waive interest for the remainder of the pandemic health emergency, but the administration has not announced a plan to do so at this time.
“We’re still assessing the impact of the Omicron variant, but our high priority right now is a smooth transition back into repayment so that’s what our focus is, and in the coming weeks, we’re going to release more details about what our plans are for that,” Kvaal told CBS News
Federal student loan interest rates are fixed, so they will not change from rates prior to the pandemic. Borrowers would see their interest rates return to the same levels they were at prior to the pause for the pandemic.
Interest rates for new federal student loans reset every July and rely on a formula set in law based on the 10-Year Treasury note. While interest rates on federal student loans remain close to historic lows, loans distributed after last July and before July 2022 had higher interest rates than the year before: interest on undergraduate Federal Direct Stafford loans increased from 2.75% to 3.73%, while Interest on Graduate Federal Direct Stafford loans increased to 5.28% and interest for Federal Direct PLUS loans increased to 6.28%.
Borrowers facing financial challenges and concerned they cannot afford the monthly payments when they kick back in may have several options available to them. The most important step they can take is to “get in touch,” the Education Department said.
For those with federal student loans, there is an economic hardship deferment as well as an unemployment deferment option. There is also forbearance. Each of these have a three-year limit, but in nearly all cases, borrowers will still be on the hook for the interest.
“For the most part, you’re delaying the inevitable, and if you do this for an extended period of time, you are digging yourself into a deeper hole. But the idea behind deferment or forbearance is to provide short-term financial relief for when you have short-term financial difficulty,” said Kantrowitz.