Students heading to campus this fall may be confused by the recent headlines about student debt and wondering: Does this have anything to do with me?
Will the pause on student loan repayment that started early in the pandemic be extended? Is part of the student debt forgiven?
“It’s a very confusing time,” said Regan Fitzgerald, manager of the Pew Charitable Trusts project about student loan success.
Here is an overview of what is known and unknown and what students should be aware of.
The break on payments and interest on most federal student loans is expected to end on August 31. An extension would have less of an impact on students still in school because they are not yet repaying their loans, financial aid experts say. (Even borrowers at school take advantage of the break on loan interest, though.)
And while it’s still unclear whether the Biden administration will act to cancel some of the student debt, the relief may be limited. It may target borrowers with income below certain limits and loans borrowed before a certain date (possibly before June 30 this year, according to Politico) – suggesting that students who only borrowed in the 2021-2022 academic year can taking advantage. But until the plans are announced, “we’re not sure what the parameters will be,” Ms Fitzgerald said.
Student loans: important things to know
Student loans: important things to know
New rules. The Department of Education is preparing a series of new federal student loan rules that aim to expand access to various assistance programs. The measures also include interest capitalization limits – which adds unpaid interest to the borrower’s principal, increasing the total amount owed.
In an emailed statement, a spokesperson for the Ministry of Education said that “the assessment of the ministry’s broad debt cancellation is ongoing and no decisions have been made.”
Because the rules seem to keep changing, it’s important for borrowers to keep up with student loan options and policies, Ms. Fitzgerald said. “Financial awareness around student loans is very important,” she said.
Students borrowing money for the fall should focus on what they need rather than speculate about whether some debt can be cleared, said Michele Streeter, senior director of university affordability at the Institute for College Access and Success, a non-profit organization that promotes university affordability.
“I would strongly advise that no one should borrow on the assumption that any loans will be forgiven in the future,” said Ms Streeter. “If I were a borrower, I’d turn off the sound 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.” Your total debt at graduation should be less than your projected annual starting salary, he said — ideally “much less.”
Abby Shafroth, an attorney with the National Consumer Law Center, said students were right to be concerned about borrowing too much, but should also be wary of borrowing too little. “You don’t want to borrow less, but then don’t have enough for books,” she said.
The Consumer Financial Protection Bureau provides tools on its website to determine how much you can safely borrow based on your financial situation and projected 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 rose to 4.99 percent for loans through June 2023. Federal loan rates are set each spring based on a formula and apply to all new loans issued during a given academic year. year are provided. The interest is fixed for the duration of the loan. So if the interest on your loan was 3.73 percent in the past academic year, that will not change. (Rates for most student loans are temporarily zeroed during the repayment break; normal rates are expected to apply when the break is lifted.)
How much can I borrow per year for university?
In general, dependent students can borrow up to $5,500 in federal loans their first year, $6,500 in the second year, and $7,500 for each of their third and fourth years, with a total limit of $31,000 (in case it takes longer to to graduate). Loan limits are higher for self-employed and graduate students. Parents can borrow so-called Plus loans, at a higher interest rate, if additional financing is needed. (Private lenders also offer student loans, but the loans lack the consumer protections of federal loans and are not included in the payment break.)
Will the break on paying off student loans be extended?
It seems increasingly likely as the August deadline approaches with no announcement of plans to restart payments. “I would say it is very likely that there will be another extension,” Ms Streeter said. Mr Kantrowitz said he thought the hiatus could be extended until next year.
Loan servicers — the companies that send statements and manage payments for borrowers — have received “strong guidance” from the Department of Education not to notify borrowers about resuming payments, said Scott Buchanan, executive director at the Student Loan Servicing Alliance. , an industry group. If the repayment break isn’t extended, he said, “we’ve missed an opportunity to prepare for it.”
DailyExpertNews offers a guide to help borrowers prepare for repayment.
A spokesman for the Department of Education said it would communicate directly with borrowers about the end of the payment pause when a decision is made, adding that President Biden has indicated it will happen at the end of August.