Student loan interest set to resume after January as pandemic break ends

Sep. 25—Student loan borrowers haven't had to pay a cent back since the rise of COVID-19.

But the clock is ticking.

There are 26 million federal student loan borrowers, the U.S. Department of Education said, and their COVID-19 flexibility is set to end after January 2022.

The department's Federal Student Aid information center and loan service workers have been attempting to stay in touch with borrowers through social media and sending millions of emails.

Some borrowers — about 30% — have opted to make payments during the forbearance period, the FSA said in an email.

There's 0% interest on loans right now, so all payments go toward bringing down principal.

"Now, when things are in forbearance, is an excellent time to continue to pay," said Ethan Stewart, certified financial planner with Centennial Financial Group on Main Street in Johnstown.

He said some clients have paid their debts off faster with the forbearance.

Principal principles

Stewart said he recommends setting up an automatic repayment plan, and if loans are not bundled together, he said to focus on paying off the loan with the highest interest rate and then start paying on the next one.

People with steady employment during the pandemic have been able to pay down the principals of their loans faster with no accrued interest on top.

But the respite was designed for those who have had unsteady employment due to the pandemic.

The FSA said that while some federal student-loan borrowers have likely paid down a portion of their principals during the forbearance period, all federal student loan borrowers will return to their prior status once the student loan flexibilities end.

For example, if borrower's account was in a Cancer Treatment Deferment prior to March 2020, then their loans will be returned to Cancer Treatment Deferment.

If a federal student loan borrower was in repayment status, that borrower would be returned to a repayment status once the student loan flexibilities end.

FSA and federal student loan service workers have been informing borrowers since the beginning of the COVID-19 national emergency about the end of the program.

Specifically, the FSA has regularly engaged with borrowers through email campaigns and social media.

With January less than five months away, the FSA has directed loan servicers to update their systems and operational structures to prepare for payments to resume, including hiring and training new staff to support increased operational hours.

The FSA said it is working with staff to analyze historical, current and projected future call volume and staffing levels to ensure that workers are prepared to fully support borrowers when payments resume, the FSA said.

FSA and loan servicers are developing communications that will remind borrowers about key steps they can take to prepare to return to repayment. These steps include updating their contact information, using Loan Simulator to identify a repayment plan that fits their current circumstances, and enrolling in auto-debit to ensure that their payments are made on time.

U.S. Sen. Bob Casey, D-Pa., said the COVID-19 relief given to borrowers is critical.

"Americans are struggling, and providing relief to those with education debt is critical," he said in an emailed statement.

Casey added that he would continue supporting policies to allow borrowers to refinance at lower interest rates, and to make college more affordable.

"A strong economy needs individuals who can contribute to the economy," the senator said.

"Providing assistance to borrowers can help younger workers continue purchasing goods from local businesses, renting or buying newer homes, and otherwise contributing to their communities."

Russ O'Reilly is a reporter for The Tribune-Democrat. Follow him on Twitter @RussellOReilly.