Students heading to campus this fall may be confused by the recent headlines about student debt and wonder: does any of this affect me?
Will the pause on student loan payments that began at the beginning of the pandemic be extended? Will some student obligations be waived?
“The timing is very confusing,” said Regan Fitzgerald, manager of the Pew Charitable Trusts’ Project on Student Borrower Success.
Here’s a rundown of what’s known and unknown, and what students should keep in mind.
The moratorium on payments and interest on most federal student loans is scheduled to end on August 31. The extension would have less of an impact on students still in school because they are still defaulting on their loans, financial aid experts say. (Even school borrowers benefit from the loan interest break, though.)
And while it’s not yet clear whether the Biden administration will take action to ease some student debt, any relief may be limited. It could target borrowers with income below certain limits and loans borrowed before a certain date (probably before June 30 of this year, according to Politico) — meaning students who only borrowed in the 2021-22 school year could to take advantage of. But until the plans are announced, “we’re not sure what the parameters will be,” Ms. Fitzgerald said.
Student loans: key things you need to know
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Student loans: key things you need to know
New rules. The Department of Education is preparing a set of new rules for federal student loans that aim to expand access to various relief programs. Among the measures are limits on interest capitalization — which adds unpaid interest to a borrower’s principal, compounding the total amount owed.
Student loans: key things you need to know
Inflation and debt cancellation. Rising prices are complicating a tense debate between President Biden and his advisers over whether to cancel thousands of dollars in student loan debt for tens of millions of people. The decision is expected before the end of August.
In an emailed statement, a Department of Education spokesman said “the department’s review of wide-ranging debt cancellation is ongoing and no decisions have been made.”
Because the rules seem to be constantly changing, it’s important for borrowers to stay up-to-date on student loan options and policies, Ms. Fitzgerald said. “Financial awareness about student loans is very important,” she said.
Students borrowing money for the fall should focus on what they need instead of speculating whether any debt can be erased, said Michele Streeter, senior director of college affordability at the Institute for College Access and Success. a nonprofit organization that promotes college affordability.
“I would strongly advise against anyone taking out loans on the assumption that all loans will be forgiven in the future,” Ms Streeter said. “If I were a borrower, I would shut out the noise and focus on what I need to borrow right now.”
Mark Kantrowitz, a financial aid expert, advises students to borrow “only as much as you need, not as much as you can afford.” Your total debt at graduation should be less than your expected annual starting salary, he said — ideally, “much less.”
Abby Shafroth, an attorney with the National Consumer Law Center, said students are right to worry about borrowing too much, but they should also be careful about borrowing too little. “You don’t want to borrow less but then not have enough for books,” she said.
The Consumer Financial Protection Bureau offers tools on its website to help you determine how much you can safely borrow based on your financial situation and expected income after graduation.
Here are some questions and answers about student loans:
What are the current interest rates on federal student loans?
On July 1, federal student loan rates for college students rose to 4.99 percent for loans made through June 2023. Federal loan rates are set each spring based on a formula and are applied to all new loans made during a given academic year. year. The interest rate is fixed for the term of the loan. So if your loan rate for the last school year was 3.73%, that won’t change. (Interest rates on most student loans are temporarily set to zero during the repayment pause; regular interest rates are expected to apply when the pause ends.)
How much can I borrow for college each year?
In general, dependent students can borrow up to $5,500 in federal loans in their first year, $6,500 in their second year, and $7,500 in each of their third and fourth years, with a total cap of $31,000 (in case it takes longer to graduate). Loan limits are higher for independent and graduate students. Parents can borrow so-called Plus loans, at higher interest rates, if additional financing is needed. (Private lenders also offer student loans, but the loans do not have the consumer protections of federal loans and are not included in the payment break.)
Will the student loan repayment pause be extended?
It looks increasingly likely as the August deadline approaches with no announcement of plans to restart payments. “I would say it’s very likely there will be another extension,” Ms Streeter said. Mr Kantrowitz said he thought the hiatus could be extended into next year.
Loan servicers — the companies that send statements and manage payments to borrowers — have received “strict guidance” from the Department of Education to delay notifying borrowers about resuming payments, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, an industry group. If the repayment pause is not extended, he said, “we’ve missed an opportunity to prepare for this.”
The New York Times offers a guide to help borrowers prepare for repayment.
A Department of Education spokesman said it will communicate directly with borrowers about the end of the payment pause when a decision is made, adding that President Biden has indicated that will happen by the end of August.
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