Americans with federal loans have several more months before their student loan payment resumes.
(Canva illustration)

About 41 million federal student loan borrowers — including about 1 million in Missouri and Kansas — got a reprieve on Dec. 22, when President Joe Biden’s administration extended the freeze on repaying the loans to May 1. 

The moratorium had originally been set to expire on Jan. 31. The extension came amid the rise of the highly contagious omicron variant of COVID-19 and pressure from congressional Democrats.

U.S. Secretary of Education Miguel Cardona said in a press release that the extension will give the administration time to assess omicron’s impact on borrowers and improve accountability and customer service from loan servicers. The Biden-Harris administration has already provided targeted student-debt forgiveness of about $13 billion through existing programs. 

According to the Federal Student Loan Portfolio, an estimated 756,800 Missouri residents owed a combined total of about $26 billion as of June, an average of more than $34,000 each. 

About 354,700 Kansas residents owed a combined total of about $11.2 billion, an average of more than $31,000 each. 

So what should you do with your 90-day reprieve? 

Here are a few steps experts suggest you can take to make the process more manageable when your payments resume. 

Know your budget and how your student loan payment fits

In the past months, you may have gotten used to skipping your student loan payment. 

“Realign your finances to the fact that you’re going to have to make a student loan payment,” said Jason Anderson, the owner of college and loan planning company Gradmetrics. “I would encourage people to log in … to their dashboard on federal student loans, and make sure they’re aware again of what their payment’s going to be.”

Anderson, based in Overland Park, is a certified public accountant in Kansas. 

Looking at your budget can help you decide if you need to make some adjustments, or if your payment is not manageable and you need to look into other options. (More on your repayment options below.) 

Make sure your information is updated with your loan servicer before your payment resumes

There are a few small logistical steps you can take to make sure you don’t miss a payment or any important information. 

The Federal Student Aid website suggests people prepare by updating their address with their loan servicer and the website.

If you were making automatic payments in the past, they won’t necessarily restart when your next payment is due. Check with your loan servicer to make sure your payment is set up the way you want it. 

Get your student loan payment paperwork organized

As you prepare to restart payments, or perhaps switch to a new plan, it’s also a good idea to organize all of your documents. 

“Just document, document, document, document, keep copies of everything,” said Christine Campbell, a family law attorney in private practice in Wichita. 

Campbell worked for Kansas Legal Services from 2008 to this past August. 

She had her student loans forgiven in July 2019 under the public service forgiveness program after nearly 11 years at the statewide nonprofit. 

She said she’s heard the process has improved, but for her it was “a nightmare” as her loan servicer changed multiple times, each time requiring her to prove her previous payments. 

At times the servicers paused her payments while they processed her income verification paperwork, even when she offered to pay more than her typical payments to avoid dragging out her repayment period. 

“Every time they did a new loan servicer, I would request the statement of my account and all the payments that I had made, which was a good thing, because fast forward … the last year, they said, ‘We show you have not paid these 12 payments.’ I said, ‘Oh, fun fact, I have,’” Campbell said. “And so I sent in all the forms necessary to prove to them I had paid.” 

Campbell said she still had to make complaints to both her loan servicer and a federal oversight agency before they put a worker on her case to resolve the issue. 

“I’m still afraid they’re going to come back and try and come after me,” she said. “So I am keeping that huge binder of stuff in my basement until the statute of limitations passes.”

Use the student loan freeze to research options beyond the default payment plan

The default loan repayment plan might not be the best for your financial situation. 

Anderson said a good starting point to explore your options is the Federal Student Aid calculator

Based on your loan amount, income and employment, it can help show you the best plan for goals you pick, such as paying your loans quickly, having the lowest monthly payment possible, or paying as little as possible over time. 

“I would encourage them if they’re in the standard plan, which most people are because it’s the default, to look into an income-driven repayment plan,” Anderson said. 

There are several plans with varying parameters, but all base payments on a percentage of disposable income.

“It can be significant. I mean, it can be half or more of what you’re currently paying,” Anderson said. 

Anderson said the downside to an income-driven plan is that it can increase the amount owed over time, especially because your payments might not be high enough to cover the interest on your loan.

“Any time you extend the term or you’re paying less, you’re going to end up paying more interest over time,” Anderson said.

Depending on your financial situation, an income-driven plan could still save you money in the long run because the remaining balance is forgiven after 20 or 25 years, depending on the plan. 

Those who work for the government, nonprofits or agencies such as AmeriCorps are also eligible for public service loan forgiveness, the program Campbell used. Those in the loan forgiveness program pay on an income-driven plan for 120 months, then have their remaining loans forgiven. 

Campbell said she took out $60,000 in loans for law school and paid $30,000 over 10 years. When her loans were forgiven she still owed about $65,000 and her statements said she had only paid $57.75 toward the principal. The rest had gone to paying interest. 

Take advantage of temporary flexibility before your payment resumes

If you’re on an income-driven plan, the earliest possible deadline for reporting your income is in August. 

But you can report changes earlier, which could be beneficial if your income has decreased since you were last making payments. 

You can also temporarily self-report your income through the end of July 2022 if all your loans are direct loans. 

Through the end of October 2022, there is increased flexibility for past payments counting toward Public Service Loan Forgiveness, including if you were not on the right repayment program. 

Anderson said that in the midst of talk about loan forgiveness and new income-driven repayment plans, people still need to make decisions based on what is currently available. 

“We just don’t know what the new plan might look like,” he said. “You’ve got to make a decision when you need to make a decision, and most people will have to do it on what exists.”

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Maria Benevento is the education reporter at The Kansas City Beacon. She is a Report for America corps member. Follow her on Twitter @MariaFBenevento.