8 Ways to Make the Most of the New Student Loan Debt Relief Program

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Credit Sesame discusses things to do when student loan payments on federal student loans resume after December 31, 2022.

The Biden Administration’s new student loan relief plan has eased the debt burden for many borrowers. Even so, most still have payments to make starting after December 31, 2022. Now’s the time to start preparing.

Though payments won’t come due until after the new year, there are things you’ll need to do in the meantime. This article will explain how to take full advantage of the debt relief program and resume making your payments successfully.

While their have been previous extensions to the repayment deadline, announcement of the debt forgiveness program seems to signal that the December 31, 2022 deadline is the real thing.

As for the hope that even more debt will be forgiven, for now it’s best to assume that this new debt relief program is the best deal most borrowers are going to get. Cancellation of all student loan debt is unlikely simply because of the scope of the problem.

Universal cancellation of federal student loans would not only create a massive, instant increase in the U.S. government’s debt. It would also endanger the future of federally-backed student loans. That could put post-high school education out of the reach of most Americans.

The student loan relief plan announced last week should make loan payments much more affordable. To take advantage of it though, people with student loan debt must start planning.

Just like returning to school in the fall, resuming student loan payments may seem like a hard habit to get back into. Before you know it though, you can adjust and be back in the swing of things. The sections below will summarize the student loan relief plan, and then list 6 steps you can take to benefit from it fully.

What will student loan relief do for you?

There are three key benefits from the Biden plan:

  • Debt forgiveness. For people earning $125,000 or less (or married couples earning $250,000 or less) the plan will wipe out part of their debt balance. Most borrowers will have $10,000 in government student loan debt forgiven. For recipients of Pell Grants, the amount will be $20,000.
  • Extension of the payment resumption deadline to December 31, 2022. Payments were originally scheduled to begin after August 31, 2022. Now borrowers have another four months.
  • Easier income-driven payments. Borrowers can now apply for an income-driven repayment plan that will limit payments to 5% of income.

Here’s the catch: you may not get these benefits automatically. Many borrowers will need to apply for them between now and when payments resume early next year. Over that same time, there are other steps you should take to get ready.

Below are 8 steps you can take to benefit fully from the student loan relief plan:

1. Update your information and look for an eligibility application

Because the loan relief is income based, people with student loan debt will have to apply for it by providing information on their earnings.

The government has announced that an application will be available in a matter of weeks. In the meantime, log onto the federal student aid website and update your profile information. Also check to see that your loan servicer has your current contact information.

Once you’re sure your contact information is up to date, keep an eye out in the weeks ahead for information on how to apply for debt relief. Then, around the end of this year, your loan servicer should notify you with information about your new repayment amounts and due dates.

2. Get your application for relief in on time

Once the application for relief is available, get it in as soon as possible. That way you can make sure it’s effective by the time payments resume.

For years, there have been programs available to make federal student loan payments more affordable. Unfortunately, borrowers often didn’t benefit from these programs simply because they failed to apply.

Don’t let that happen with this program. Instant debt relief of $10,000 to $20,000 is too good to let pass you buy. Get your application in as soon as possible.

By the way, if you are already enrolled in an income-driven payment plan or other special repayment program, the debt relief may already have been applied to your account. Be sure to check though – don’t just assume this is the case.

3. Make a loan payment schedule

Once you find out when your payments will be due, set up a schedule to ensure you make those payments on time.

If you set up automated payments through your bank account, plan to check it each month to make sure there’s enough cash available to make the next payment.

4. Review your new payment terms and balance

Once your application for relief has been accepted, you should see your total loan balance and payment amounts change. Check your account to make sure this is the case.

Also check that the balance of your loans didn’t rise during the payment moratorium. During that period, interest and late penalties were suspended. So, the balance on any federal student loans you have should have stayed the same since back in 2020 when the moratorium began (unless you kept on making payments). It should then be reduced by the new forgiveness program.

Some borrowers may even have qualified for debt forgiveness beyond the $10,000 and $20,000 limits of the new plan. For example, the federal government cancelled the debt of students who were victims of schools that were found to be fraudulent, including:

  • ITT Technical Institute
  • Kaplan Career Institute
  • Corinthian Colleges
  • DeVry University

If you think you might be eligible for a full cancellation  of student loan debt, contact your student loan servicer or log on to www.studentaid.gov to find out.

There are many commercial websites out there offering information on student loans.  If you want to get the definitive information on your student loan, make sure the site has a .gov url suffix. Certainly, never provide any sensitive financial information to a non-government website without first researching it.


5. Create a payment budget

Once you’ve established the amount of your new monthly payments, you should figure out where the money is going to come from.

Create a budget that makes those loan payments a priority. This is may involve some lifestyle changes from when government student loan payments were paused. Remember that the break from payments was a temporary exception, and readjust your budget to the new reality of resuming those payments.

6. Start saving up to make repayment easier

Don’t wait until December 31, 2022 to start your loan repayment budget. You can get ahead of the game by putting that budget into action right away and depositing the payment amounts into savings over the next few months until payments resume.

Doing this will give you some extra cash on hand to make those payments in the new year. You can even build up an emergency fund to help prevent a future financial setback from jeopardizing your ability to make your loan payments.

7. Rank your loans by interest rate to prioritize payment

As noted earlier, students often take out a series of loans over their college careers. Interest rates on new federal loans are subject to change from year to year, so your loans may have different interest rates.

If you are in a position to pay a little extra toward your debt, you can save money by doing so. The faster you repay your loans, the less interest you pay.

You can save the most by paying down the highest interest debt fastest. So, rank your loans from the one with the highest interest rate to the one with the lowest. Then apply any extra payments to the one with the highest interest rate first.

Note that you have to make the scheduled payment on every one of your loans each month. Do not neglect the payment on one loan in order to pay extra on another. If you can meet more than the minimum payment on all your loans, direct the extra amounts toward the loan with the highest interest rate.

8. Look into other repayment assistance programs

If you have trouble finding the money to make your payments, don’t panic. Besides the new one-time debt relief, the government has several programs to help people figure out ways of paying their federal student loans.

Contact your student loan servicer or check out www.studentaid.gov for information on repayment assistance programs.

These programs include income-based repayment and loan forgiveness for people pursuing occupations like military service, teaching and public service. You might also apply for loan deferment forbearance in cases of temporary financial distress.

Don’t be caught unprepared when student loan payments start up again. The problems you encounter if you simply blow off your payments would be a lot tougher and longer-lasting than taking the steps to get ready to resume payments.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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