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Get Ready for the Return of Student Loan Repayments

Federal student loan borrowers got a reprieve during the coronavirus pandemic when their payments were automatically suspended and interest on those loans was waived for 2020.

But the year is almost over, and it's not clear if this relief will be extended. The upshot? Borrowers need to prepare for a restart of payments in 2021.

Here's how to plan now:

Make sure autopayments restart. Many borrowers have their payments automatically deducted from their bank account. The benefits: You don't have to worry about forgetting a payment. Plus, you get a 0.25 percentage point discount on your interest rate for auto-paying. Once repayments start, verify that your payments are being deducted so that you don't get hit with a late penalty or miss out on the interest-rate reduction.

Seek further relief. If you think you will have difficulty repaying because of a job loss or cut in work hours, contact your loan servicer immediately. The servicer can explain available options that could lower or defer payments while your financial situation improves. Among them:

  • Income-driven plans offer lower monthly payments based on your income and family size. If you currently are in an income-driven plan but your earnings have dropped, you can submit updated financial information and ask your loan servicer to recalculate your payment. Monthly payments may be as low as $0. Interest will continue to be added to your balance, although any remaining balance after 20 or 25 years will be forgiven.
  • Deferment suspends payments for up to three years because of unemployment or other economic hardship. Interest also can be suspended if you have subsidized loans. Otherwise, interest continues to accrue.
  • Forbearance allows you to suspend or reduce payments for up to 12 months at a time. You can ask for forbearances as often as you need, although your loan servicer might limit them. Interest accrues so your balance grows, which means you'll end up owing interest on that interest. If you can afford it, continue paying the interest during forbearance — as well as in deferment if interest isn't suspended — to prevent your balance from ballooning.

Private student loan lenders weren't required to suspend payments this year, although some offered temporary relief. To explore accommodations for private loans, contact the lender and ask for details.

Please note: The contents of this publication provided by MissionSquare Retirement is general information regarding your retirement benefits. It is not intended to provide you with or substitute for specific legal, tax, or investment advice. You may want to consult with your legal, tax, or investment advisor to review your own personal situation. Some of the products, services, or funds detailed in this publication may not be available in your plan. This document may contain information obtained from outside sources and it may reference external websites. While we believe this information to be reliable, we cannot guarantee its complete accuracy. In addition, rules and laws can change frequently.

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