When Does Student Loans Resume?
Repayment of federal student loans
After nearly two and a half years of suspension, the Biden administration has extended the pause on federal student loan repayments and interest accrual through Dec. 31. This suspension affects 37 million borrowers and nearly $195 billion in waived payments. It is unclear when repayments will resume, but millions of borrowers are awaiting word on this issue.
The government says it will be a challenge to get borrowers to resume repayment. Bad habits are hard to break, and one-third of those already in default were already behind on their loans before the Biden administration declared a moratorium.
Steps to take before payments resume
Before payments on your student loans resume, you should check the details of your loan account. This way, you can find out how much you owe and what interest rate you’re paying. Once you know how much you owe, you can start making your payments. It’s also a good idea to update your contact information with the loan servicer. By doing this, you can ensure that payments resume automatically.
Once payments resume, you’ll have less disposable income and less money for other financial goals. This means that you’ll need a good emergency fund. Several financial experts disagree on how large an emergency fund should be.
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Impact of rising interest rates
Higher interest rates are likely to increase the costs of new student loans. New federal undergraduate loans, for example, now carry an interest rate of 4.99%, up from 3.73% last year. Graduate and parent loans also have higher interest rates. This change could have a direct impact on new borrowers, especially those in standard repayment plans. Higher payments are also problematic for families who are already saddled with a high student loan debt.
Although the federal funds rate is not an exact interest rate, it serves as a benchmark for other loan rates. The Fed raises interest rates as part of its attempts to combat inflation. The federal funds rate is linked to external market forces, including the yield of the 10-year U.S. Treasury note. As the 10-year Treasury note is a benchmark for mortgages, an increase in the federal funds rate may increase the cost of a student loan.
Impact of COVID cases
The impact of COVID cases on when student loans restart is not clear yet, but it is likely to become more evident as more cases come to light. A study by the Social Policy Institute at Washington University in St. Louis looked at student debt and the impact of COVID cases on student loan repayment in a nationwide survey of 5,500 respondents from all 50 states. The study also examined the impact of student loans on low-income households and inequities in repayment.
The results of the study show that almost half of households with student loans reported being behind on their payments. More than half reported that they had fallen behind on their payments because of COVID-19.