What Are You Going to Do About Those Student Loans in 2022?

The U.S. Department of Education announced that the pause on student loan collections will end in August 2022. These steps will ensure that you—and your loans—have a plan for what's next.

The U.S. Department of Education announced that the pause on student loan repayment, interest, and collections will end on August 31, 2022. The website explains that "The extension will provide additional time for borrowers to plan for the resumption of payments, reducing the risk of delinquency and defaults after restart."

But while those of us with student loans likely appreciate the extension, we also have to prepare for the day when those balances come due. We spoke with Christine Roberts, head of student lending at Citizens Bank, and Erik Kroll, a certified financial planner and the owner of Student Loans Over 50, who both say that all borrowers should follow a couple of consistent steps: review the terms of your loan against your current financial situation, and choose one of three loan repayment strategies available. Oh, and prepare for confusion to arise when lenders resume collection.

Here's more on those steps, plus more you can take to ensure you have a loan repayment plan in place that will work for you.

First, reevaluate your loan terms.

With over 25 years of experience in the student loan space, Roberts spends a lot of her time working with borrowers and families to understand their loan repayment options. She says the first step to understanding what to do next is to evaluate your interest rate. Sure, you might vaguely remember what you signed up for, but some of us have had loans for decades and have forgotten the details. It is important to revisit these numbers given current financial realities.

Perhaps you could actually afford to pay that whole loan off right now—or maybe you'll be paying well into your retirement. After a thorough review of your amortization schedule, which includes a detailed payoff timeline and the total amount of interest on the loan, you can make an informed decision about what to do next. Our experts say these are the top three options.

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Enroll in a forgiveness program.

There is no crystal ball that can help borrowers predict when or if legal review on student loan debt cancellation will conclude. There are rumors that Congress or the President could cancel certain loans for certain borrowers up to a certain amount. But it's anyone's guess who will ultimately benefit from this uncertain prospect—and who will be left holding a bill.

Kroll, who is passionate about helping older borrowers tame their student loans and retire with peace of mind, suggests that his clients create a forgiveness strategy, rather than holding out hope for cancellation. There is renewed support to honor the public service loan forgiveness (PSLF) program, which was widely criticized for leaving many educators, health care professionals, and public servants in the lurch. Now there is a temporary expanded PSLF program, which stands to deliver relief. Rather than waiting for cancellation, it's best to seek enrollment in a forgiveness program or investigate reimbursement options through your employer.

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Make payments now.

Borrowers could resume payments now to pay down the loan principal. Roberts advises that people with disposable income do this to save money over the life of their loan. This textbook approach means that whenever the lenders do come knocking, you've already eliminated a significant amount of the loan balance. By using this time to continue or accelerate payments, borrowers are effectively paying 0 percent on the loan. If you can pay off the loan completely before repayment takes effect, even better.

However, if the balance is too large or funds are already allocated to other necessities, then decision-making gets trickier. A certified financial planner could help you create a debt-freedom roadmap to crunch the numbers and find out if paying down this student loan early would be worthwhile. Alternatively, for some individuals, paying down higher-interest debt or funding an emergency savings account might be a better course of action.

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Consolidate or refinance to a lower-interest loan.

"Depending on a borrower's credit profile, refinancing could reduce their interest rate, allowing them to save over the lifetime of the loan," Roberts says. Many people find value in consolidating multiple loans to just one loan with just one monthly payment. "Consolidation simply results in one new loan at a weighted average of your currently existing interest rates. This means borrowers need to do the math to find their overall new rate to make sure they aren't increasing their total monthly payment amount," she warns. Roberts says that borrowers should definitely begin to look into refinancing options now.

If consolidating is the equivalent of speed-walking to the finish line, refinancing is the equivalent of sprinting. Refinancing means forgoing the federal loan forbearance, in exchange for a lower interest rate with a private lender. Kroll explains that "even though switching to a private carrier will cause payments to start, interest rates for borrowers are very low right now. The interest saved over the course of time could be worth it, especially if interest rates rise, perhaps because some expect that there will be a flood of people seeking to refinance once the payment freeze ends." He also reminds people banking on a forgiveness or cancellation strategy not to refinance their government-backed federal loans, as this could render them ineligible for those eventual relief programs.

Finally, keep backups of your loan records.

Given that this is the first moratorium of its kind in our nation, experts say that borrowers should expect glitches when the payment pause ends. "There is also a perceived lack of organization at the servicer level," Kroll says. "Under the current rules, I'd expect to start seeing letters from the servicers notifying borrowers of their upcoming payments." He also noted that some loan servicers have publicly stated that they are backing out of servicing federal loans after December 31, which could mean that those loans will be shifted to new lenders, causing even more confusion about account numbers, online access, and payment processes.

Roberts says that borrowers should check online with their loan service providers to see if the payment amount or timeline has changed. "Currently, the federal government has said that loans will be reamortized, which means that the remaining balance on the loan will be equally spread out amongst the number of payments left on the loan. That means, if you had 120 payments left when the forbearance went into effect, you will have 120 payments left starting February 1, 2022," she says. This matters because if you've made any payments during the zero interest forbearance, your payment amount or the number of remaining payments should go down. If not, you'll have to contact the lender and set the record straight. It is best to print out payment records, save statements to PDF, and be prepared to hold your loan servicer accountable for any discrepancies that may arise.

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