Federal student loans are due soon: What to know

With interest rates near historic lows, now could be a good time to consider a student loan refinance. (iStock)

If you have federal student loans, you're likely aware that the clock is ticking down on federal relief efforts. Without another executive order from President Trump or the passage of a new coronavirus stimulus package, you'll need to be prepared to restart payments to your loans on January 31, 2021.

Contemplating a student loan refinance is one option you might consider; taking an extended forbearance another.

If you have private student loans, however, then this type of relief doesn't apply to you. If you're looking to lower monthly payments and ease the burden of student loan debt, then you may want to consider refinancing your student loans. Lock in some of the lowest interest rates ever via the online marketplace Credible.

As January draws closer, here are some of the most important things to keep in mind about student loans.

How the CARES Act affects your student loans

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) yielded a number of financial benefits, including three key provisions for federal student loan borrowers. Specifically, the CARES Act:

  1. Temporarily paused federal student loan payments
  2. Reduced interest rates on eligible loans to 0%
  3. Stopped the collection of defaulted student loan debt

These benefits were set to end on September 30, 2020, but were extended through January 31, 2021. Without further government action, borrowers are expected to begin resume making payments to their loan servicers in February.

If you have private student loans, you may want to consider refinancing your student loans while rates are hitting record lows. With a refinance, you're getting a new loan to pay off your existing student loans, ideally with a lower rate and a lower monthly payment. You can use Credible's free online tool to compare multiple lenders within minutes.

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How to manage student loans after CARES Act expires

If you have federal student loans, you still have some time to plan for how you'll manage them once CARES Act protections end. Some options you might consider include:

  1. Set up automatic payments
  2. Income-based repayment
  3. Consolidate federal loans
  4. Extend student loan forbearance
  5. Student loan refinancing

1. Set up automatic payments

Automating loan payments is a simple personal finance hack that can make managing student loans easier. Putting monthly payments on autopilot can help you avoid late payments and late fees, as well as credit score damage. Many loan servicers also offer an interest rate discount for automating loan payments.

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2. Income-based repayment

Income-based repayment plans can offer lower payments if you're having trouble keeping up with your federal student loans because of a change in income. Choosing an income-based repayment option is helpful for saving money in the near-term since you could significantly lower your payment. And it could help you qualify for student loan forgiveness.

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3. Consolidate federal loans

Consolidating federal loans won't result in lower rates. But it can make managing federal student loans simpler since you'll have just one loan payment going forward. That could make it easier to budget for student loan repayment each month.

Again, if you have private student loans, you'll want to refinance those student loans instead. Credible can reveal what refinance rates you qualify for. You can compare student loan refinancing rates from up to 10 lenders without affecting your credit. Plus, it's 100% free!

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4. Extend student loan forbearance

You may be able to continue pausing payments temporarily. You may be able to ask for deferment or forbearance periods that allow you to take a break from repaying your loans. You could then use this time to explore student loan refinance or consolidation options.

You may also be able to make use of any grace periods you have to defer payments. With most types of federal student loans, you have a six-month grace period after you graduate, leave school, or drop below half-time enrollment.

Private student loan borrowers who are not getting any relief during the coronavirus pandemic should consider other options to lower student loan payments. Visiting Credible to explore refinancing options could be a good first step.

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5. Student loan refinancing

A student loan refinance involves taking out a new loan to pay off existing loans. If you have federal student loans you could refinance them using private student loans.

Just note: If you have federal student loans, then make sure you do your research ahead of time. Credible lists some of the pros and cons of refinancing federal student loans after the CARES Act benefits expire.

Federal student loans offer many protections and perks for students — like student loan forbearance and deferment options, income-driven repayment, and potential student loan forgiveness — that private loans do not. Therefore, if you switch to a private student loan, you could lose some of those benefits.

Those who have private student loans don't have these same benefits. So, refinancing student loans while interest rates are low could yield lower monthly payments and a better rate, both of which could make managing student loan debt easier. Visit Credible to compare refinance rates from multiple lenders without affecting your credit.

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Could federal student loan relief be extended? 

It's possible that you may be able to defer making payments to your loan balance beyond the end of January. But for that to happen, one of these scenarios would likely have to take place:

  • President Trump could sign another executive order extending CARES Act forbearance beyond the end of January
  • Congress could pass another coronavirus stimulus package that includes student loan relief before the end of the year
  • President-elect Biden could sign an executive order offering federal student loan relief once he takes office on January 20, 2021

Whether the current administration or the next one opts to extend federal student loan relief, it's important to plan now as if you will be making payments come February.

What about private student loans?

Remember, if you have private student loans the CARES Act protections don't apply.

The good news is that you can still pursue student loan refinancing to manage private student loans. With interest rates as low as they are, now could be good for a student loan refinance if you're interested in saving money or getting lower payments. You can learn more about private student loan refinance options by visiting Credible and comparing rates from multiple private student loan lenders.

It's also helpful to use an online student loan refinancing calculator to estimate your new monthly payments.

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