Change is coming for student loan borrowers in 2022. We pose five questions they shouldn’t be afraid to ask – and simplify complex answers.
The year ahead promises to bring serious change in the world of student loans – and it will spark many questions from current and former students who have borrowed federal and private student loans. While you’ve probably been getting the following five questions from students for years, evolving developments may make them more challenging to answer than ever before. We gathered information you may find useful to share with borrowers.
1. Do I really have to repay my student loans?
Yes, you’re responsible for repaying your loans until something officially happens to release you from your loan obligations. You’ll want to watch the news for developments that impact your loans, such as:
- Payment pause. After months of paused payments due to the COVID-19 emergency, federal student loan repayment is slated to start again for borrowers soon. You should plan to have your federal student loans enter repayment this spring.
- Possible grace period. According to higher education expert Mark Kantrowitz, the Education Department may consider giving borrowers a three-month grace period during which they will not be reported as delinquent to the credit bureaus for late payments – borrowers will instead be automatically placed in a forbearance.1 As a borrower, though, remember that interest will start being charged again when repayment starts – and even if you are granted a grace period, accrued interest capitalizes and adds to the amount you’ll pay in the long run.
- Loan cancellation action. Most experts agree that something is likely to happen with loan cancellation prior to the mid-term elections. While President Joe Biden says he favors cancelling $10,000 of loans for all borrowers, some Democrats are pushing to raise the amount to $50,000 per borrower. Until something official happens, though – again, you’re still responsible for all of the loans you’ve borrowed.
- Relief for defaulted borrowers. There’s some discussion that the Education Department may move defaulted student loan borrowers out of that status. This would protect 7 million borrowers from debt collection tactics such as having their wages, tax refunds, and Social Security checks garnished. That would also mean that borrowers currently in default might then miss out on the expanded child tax credit, which is paid as a tax refund.1
2. If I can’t afford my student loan payments, can I lower them?
Yes. There are many options to lower your payments with federal student loans – including income-driven repayment (IDR) plans. Federal Student Aid’s Loan Simulator can help you see different ways to lower your payments and evaluate different repayment strategies. If you opt to change to an IDR plan, you’ll need to provide documentation to prove your income and family size, but the Education Department is considering allowing borrowers to self-certify this information.1
It’s always been true that borrowers who are concerned about making their payments should reach out to their servicer for help or consider changing to a different payment plan. Now, with so many millions of borrowers headed back into repayment at the same time, it’s more important than ever to reach out to your servicer early in order to help ensure you get the timely help you need before repayment begins.
With private student loans, talk with your lender if you can’t afford your payments. Private loans don’t offer the same borrower benefits and payment plan options federal loans do, and your lender isn’t obligated to help you find an alternative repayment option, but they may be willing to do so if they can help avoid defaulted loans.2
Keep in mind that, with lower monthly payments, you’ll take longer to pay off your student loans, which means more interest will accrue. You’ll end up paying more on your student loans in the long run.
3. Who is my student loan servicer?
Now is the perfect time to make sure you know your loan servicer or servicers – and that they have your current contact information. With the federal loan payment pause ending soon, you’ll want to receive important communications.
Three companies that have serviced federal student loans – the Pennsylvania Higher Education Assistance Agency (also known as FedLoan Servicing), Navient, and Granite State – are ending their servicing contracts with the government. Approximately 16 million borrowers working with these servicers will have their accounts transferred to another servicer in the coming months. It’s especially important that your current servicer has updated information to reach you with important communications through the transition.
4. How do I find my interest rates?
To find interest rates on your federal student loans, visit NSLDS and follow the login instructions for the MyStudentData download to access details. For private loans, contact each lender to find interest rates for your loans. If you find that your private student loans have a variable interest rate, you’ll want to monitor monthly statements to maintain an accurate monthly budget, since your payment amounts may vary.
If you can afford to make payments while you don’t need to (like while you’re in school, in grace, or while payments are paused), you’ll reduce the amount of interest that accrues and lower the total amount you pay in the long run.
5. Can I combine all my student loans?
Yes. You can consolidate your federal student loans into one loan with one of the federal loan servicers – and you can choose the servicer. One of the advantages of consolidating student loans is the simplicity of having just one monthly payment and dealing with one servicer – and that may be especially useful if you’re a borrower who is impacted by this year’s servicer changes.
Keep in mind that consolidation lengthens the repayment period and you may pay more interest over the long run, depending on your current rates and your consolidation interest rates. More interest will accrue on a higher principal balance with consolidation than if you hadn’t consolidated. Consolidation may also affect your eligibility for IDR plan forgiveness or Public Service Loan Forgiveness.2
Refinancing all or part of your student loan debt at a lower interest rate with a private loan may help you save money in the long run – particularly if interest rates stay low in 2022. You’ll want to be wary of including federal student loans in a private student loan refinance unless you’re sure you won’t need federal student loan borrower benefits like income-driven repayment. Once you refinance federal student loans in a private refinance loan, you lose those federal borrower benefits.