Student loan payments have been on pause for nearly two years. Come May, they’re scheduled to resume.
Many of the tens of millions of borrowers will find themselves in a different financial situation then they were in March 2020, and a different payment plan may make more sense for them as a result.
Meanwhile, during the pandemic, a number of the largest companies that service federal student loans have announced they’ll no longer be doing so, meaning many will have to adjust to a new servicer in the spring.
Given all the changes, experts say borrowers should start preparing for payments to restart now.
Here’s what you need to know.
Could the payment pause be extended again?
It’s understandable if you don’t totally believe that the bills will resume in May.
The pause has been extended five times over the last 24 months, and when the U.S. Department of Education announced that it was prolonging the relief in August of last year, it said that would be the final break. Then it announced in December that borrowers would get yet more time.
“You can cry wolf only so many times before borrowers no longer believe that the payment pause and interest waiver are ending,” said higher education expert Mark Kantrowitz.
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Still, a spokesperson for the White House said the Education Department is “working to ensure a smooth transition to repayment in May.”
Because student loan servicers will likely be overwhelmed at that time, borrowers should get in touch with their lenders as soon as possible, said Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit.
You’ll want to see what payment plan makes sense for you now, and make sure your contact info is up to date.
What if my servicer is changing?
Three companies that serviced federal student loans — Navient, the Pennsylvania Higher Education Assistance Agency (also known as FedLoan) and Granite State — all recently announced that they’d be ending their relationship with the government.
As a result, around 16 million borrowers will have a different company to deal with by the time payments resume, or not long after, according to Kantrowitz.
Double-check that your servicer has your current contact information, so that you receive all the notices about the upcoming change, experts say.
Impacted borrowers should get multiple notices, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.
Come May, if you mistakenly send a payment to your old servicer, the money should be forwarded to your new one, Buchanan said.
What if I won’t be able to start paying again?
If you’re still unemployed or dealing with another financial hardship because of the pandemic, you’ll have options come May.
First, put in a request for the economic hardship or the unemployment deferment, experts say. Those are the ideal ways to postpone your federal student loan payments because interest doesn’t accrue under them.
If you don’t qualify for either, though, you can use a forbearance to continue suspending your bills. But keep in mind that interest will rack up and your balance will be larger – sometimes much larger – when you resume paying.
If you expect your struggles to last awhile, it may make sense to enroll in an income-driven repayment plan.
These programs aim to make borrowers’ payments more affordable by capping their monthly bills at a percentage of their discretionary income and forgiving any of their remaining debt after 20 years or 25 years.
How do I decide on the right payment plan?
Many people’s lives have been changed by the pandemic.
If your circumstances look different than they did nearly two years ago, it may make sense to review the payment plans available to you and find one that’s the best fit for your current situation.
In the meantime, the law has also changed.
Student loan forgiveness is now tax-free until at least 2025, thanks to a provision included in the $1.9 trillion federal coronavirus stimulus package that President Joe Biden signed into law in March of last year. That policy will likely become permanent.
That may make income-driven repayment plans more appealing, since they often come with lower monthly bills and borrowers will likely no longer be hit with a massive tax bill at the end of their 20 years or 25 years of payments.
But if you can afford it, the standard repayment plan is just 10 years.
To calculate how much your monthly bill would be under different plans, use one of the calculators at Studentaid.gov or Freestudentloanadvice.org, Mayotte said.
If you do decide to change your repayment plan, Mayotte recommends submitting that application to do so with your servicer now.
“I have significant concerns that there will be some big servicing delays,” Mayotte said.