About 40 million student borrowers got some relief last year when the Department of Education allowed student debtors to temporarily skip their loan payments due to the COVID crisis.
Even better, DOE did not charge interest on student loans during the forbearance period.
But DOE’s relief program ends on September 30, and the feds expect all borrowers to start making their monthly payments again in October. Will borrowers begin writing those monthly checks?
Maybe not. Navient reported in April of last year that 40 percent of federal student-loan borrowers requesting COVID repayment relief held loans that previously had been delinquent or in forbearance. In other words, millions of student debtors were not making payments on their loans even before the COVID crisis.
Student loans are kind of like overdue books from the library. They are easy to forget about if you don’t make that payment every month.
The Department of Education’s website lists a host of options for borrowers as the COVID-forbearance plan winds down. If you are a distressed student debtor, you should take a look at that site.
But here’s my advice. If you are financially unable to repay your student loans under DOE’s standard 10-year repayment program, sign up for the most generous income-based repayment plan (IBRP) you can find. IBRPs are a terrible option because your loan payments will not be large enough to cover accruing interest. Thus, your loan balance will keep growing in the years to come, even if you make regular monthly payments.
But your monthly loan payments will be lower under an IBRP and allow you to tread water until some sort of comprehensive relief program is put in place.
As I have said a thousand times, Congress needs to revise the Bankruptcy Code to allow overburdened college borrowers to discharge their student loans in a bankruptcy court. But that may never happen.
Some politicians are calling for wholesale student-loan relief. Just wipe out $1.7 trillion in student debt, they say. But that may never happen either.
The student-loan catastrophe is enormous and getting bigger with each passing day. If you haven’t taken out federal student loans yet, choose a college program that will lead to a job and do everything you can to avoid taking on onerous levels of student debt.
If you already have a mountain of student-loan debt, get into an IBRP and wait for Congress to clean up the mess. But don’t hold your breath.
And one more piece of advice. Don’t ask your parents to take out a Parent PLUS loan, and don’t take out loans from a private lender.
If you have a money, credit, or debt question you’d like to ask the Get Out of Debt Guy, click here.