Student Loan Repayments Are Restarting Soon: Here's What You Need To Know

As the coronavirus pandemic forced millions into unemployment and financial uncertainty in March 2020, federal student loan payments were put on pause and interest rates were set at zero. In August, the Biden administration issued one more "final extension" of the federal student loan payment pause to January 31, 2022. But in February 2022, millions of borrowers will have to start repaying their loans once again – many for the first time in nearly two years.

More than 42 million people had federal student loans of some form as of fall 2021, amounting to nearly $1.6 trillion in student loan debt, according to Education Department data. That includes more than 36 million with direct loans totaling more than $1.35 trillion. 

"It's a major endeavor, and we're doing everything we can to get the word out to make sure that borrowers are prepared for when loan payments start in February," Under Secretary of Education James Kvaal told CBS News. The Education Department is already working to reach more than 30 million borrowers about the change.

As millions head into repaying their loans, the most important thing officials and experts say borrowers can do ahead of the pause ending is make sure their contact information is up to date. Borrowers can expect to see several communications leading up to the deadline, but having their address, email and phone numbers up to date is vital for receiving any and all information.

Borrowers between now and the end of January should also examine their current budgets and decide what they need to do, so they can be ready to make regular payments once again toward their federal student loans, experts say.

Here's what else you need to know when the pause ends:

When are the first payments due?

Not all loan payments are due on the same day — so millions of people won't be making payments on February 1. Once the COVID-19 forbearance ends, borrowers will receive a billing statement or notice at least 21 days — 3 weeks — before the first payment is due. Some borrowers may not have to make their first payment until March. Borrowers should ask their loan servicers what date their first payment after the pause ends is due.

Will automatic payments automatically resume?

It depends. If a borrower had automatic debit for student loans set up before the pandemic, it does not mean automatic payments will resume when the student loan pause ends. Borrowers should check with their providers about automatic payments.

"If they are not already in an auto-pay or auto-debit plan, they should consider signing up for one," said college financial aid expert Mark Kantrowitz. "The lenders will give them a slight interest rate reduction as an incentive." 

For those with federal student loans, that incentive is typically a quarter of a percentage point.

Will interest remain at zero when payments restart?

As of now, no. A group of Senate Democrats have asked President Biden to waive interest for the remainder of the pandemic health emergency, but the administration has not announced a plan to do so at this time.

"We're still assessing the impact of the Omicron variant, but our high priority right now is a smooth transition back into repayment so that's what our focus is, and in the coming weeks, we're going to release more details about what our plans are for that," Kvaal told CBS News. 

Federal student loan interest rates are fixed, so they will not change from rates prior to the pandemic. Borrowers would see their interest rates return to the same levels they were at prior to the pause for the pandemic.

Interest rates for new federal student loans reset every July and rely on a formula set in law based on the 10-Year Treasury note. While interest rates on federal student loans remain close to historic lows, loans distributed after last July and before July 2022 had higher interest rates than the year before: interest on undergraduate Federal Direct Stafford loans increased from 2.75% to 3.73%, while Interest on Graduate Federal Direct Stafford loans increased to 5.28% and interest for Federal Direct PLUS loans increased to 6.28%.

What if restarted monthly payments are too high for borrowers?

Borrowers facing financial challenges and concerned they cannot afford the monthly payments when they kick back in may have several options available to them. The most important step they can take is to "get in touch," the Education Department said. 

For those with federal student loans, there is an economic hardship deferment as well as an unemployment deferment option. There is also forbearance. Each of these have a three-year limit, but in nearly all cases, borrowers will still be on the hook for the interest.

"For the most part, you're delaying the inevitable, and if you do this for an extended period of time, you are digging yourself into a deeper hole. But the idea behind deferment or forbearance is to provide short-term financial relief for when you have short-term financial difficulty," said Kantrowitz.

Those whose incomes are lower now than before the pandemic may be eligible for lower payments by enrolling in an income-driven repayment plan. To do this, borrowers need to fill out an application — and borrowers who are new to receiving an income-based plan as well as those who need to recertify their income information to update their current circumstances will have to fill one out. Payments under one of these plans can be as little as $0 a month. 

What happens for borrowers who had loans in default?

Collections on defaulted student loans — For borrowers who had failed to make payments and had their federal student loans go into default, collections were also put on pause during the coronavirus pandemic. The temporary zero percent interest rate and pause on collections also lift at the end of January. 

For those who just got a new job, wages cannot be garnished immediately, but loan holders, in this case the government, can report borrowers to the credit agencies, withhold some benefits such as Social Security, and collection agencies can start contacting borrowers again pretty quickly. 

Borrowers in default have several ways to get back on track – including loan rehabilitation, which includes an agreement to a series of payments, and loan consolidation. Borrowers should reach out to their loan holder to determine a reasonable monthly payment to help get out of default.

What happens with borrowers who will have a new loan servicer?

Some 16 million borrowers could have a new federal loan servicer when repayments kick back in. That's because some companies, such as Navient, have ended contracts to service federal student loans. For those who are dealing with a new servicer, they should receive communications from both their former servicer and the new servicer about the changes and how to set up online accounts. 

Experts encourage borrowers with a new servicer to carefully document all their loan information from their account with their old servicer and compare it with what is in the new servicer's system. While information should be seamlessly transferred to the new servicer, like with any moves, there is always a chance of error so having records of loan amounts, payment details and interest rates are good to have available and cross-checked just in case.

Is there any chance of a student loan pause extension?

When announcing the extension to the end of January over the summer, the Biden administration called it a "final extension." When asked this month if the administration would further extend the student loan deferment, White House press secretary Jen Psaki said more details will be released on the administration's plans, but they are still assessing the impact of the omicron variant, and a smooth transition back to repayments is a "high priority."

Several lawmakers are pressing student loan servicers ahead of the deadline to see if they are prepared to help millions of people transition back into repaying federal student loans. 

Will student loan debt be canceled? 

A number of Democrats are pressing President Joe Biden to cancel up to $50,000 in student loan debt, including Senate Majority Leader Chuck Schumer and Senator Elizabeth Warren. Soon after taking office, Mr. Biden said that Congress would need to act to cancel student loan debt. But in the spring, the president asked the Education Secretary to outline his legal authority to cancel student loan debt. 

"We're working very hard with the Justice Department and the White House to look at our potential legal authority, and those conversations are ongoing," said Kvaal.

Even as a determination has yet to be made, the administration has taken some steps to wipe out certain student debt. Since January, the administration has approved the cancellation of more than $12.5 billion in student loans affecting roughly 640,000 borrowers, according to the Education Department. That includes discharges for permanent disabilities, those found to have been defrauded by schools, and forgiveness for public service.