By now, student loan payments have been paused for more than two years. As the COVID pandemic swept the nation, President Trump and President Biden both opted to extend moratoriums on payments for student loan borrowers.
Now, borrowers are once again approaching a resumption date. Until told otherwise, borrowers are expecting to start their payments up again on May 1, just one month from now. And while some leaders, including the Department of Education, have expressed concerns that borrowers aren’t ready to resume payments in May, one student loan fintech CEO thinks otherwise.
Bobby Matson is the founder and CEO of Payitoff, a startup that powers student loan restructuring and refinancing programs for dozens of major financial institutions. Through his financial institution partners, Bobby oversees thousands of student loans – and has observed how borrowers are preparing to pay them off in May.
“Most of the borrowers who use our partners’ apps have already taken significant steps to get ready for payments to resume,” said Matson. “While there’s been a lot of talk about the risk of delinquency when payments resume in May, many borrowers have actually already been taking simple steps to prepare for their student loan payments. We’ve seen their efforts pay off firsthand as we’ve saved our borrowers $11 million through our partners to date – so we know some borrowers are taking action to improve their situation.”
Matson thinks the advance warning of having the moratorium extended (several times over) may have made it easier for borrowers to get their ducks in a row, even in uncertain economic conditions. “Some borrowers have opted into federal income-driven repayment plans to minimize their monthly payments. We’ve also seen married borrowers take steps to separate their finances from their spouses’, so they can lower their minimum monthly payment,” Matson explained. “By now, if they’re using one of our partners’ apps, they’ve likely already restructured and budgeted for the May 1st payment resumption.”
It’s also understandable that some borrowers have put off thinking about their loans in the hopes that they’ll be forgiven, says Matson. “I’ve managed six-figure student loan debt myself,” said Matson. “I know how overwhelming it can feel – especially when you’re dealing with hypotheticals, the way borrowers have been for much of the past two years. But it can only benefit borrowers to be prepared for any scenario.”
For borrowers that still feel unprepared to restart payments, Matson has suggestions for how to handle their student loans:
- Explore all your options. “Several of our partners offer free loan management guidance tools, so you can play around with different scenarios for your loans,” says Matson. “Chipper, for example, is an app that allows you to connect your loan servicer accounts and see if you could be making lower monthly payments. StudentAid.gov also offers a free loan simulator tool that will allow you to manually play out different scenarios.” By exploring different options, borrowers could find ways to pay down their debt faster, or lower the amount they pay each month.
- Look at income-driven repayment plans. The federal government offers four types of income-driven repayment (IDR) plans, and they may enable borrowers to lower their monthly payments. “This is where the student loan guidance tools we help our partners build really come in handy,” says Matson, “because depending on your circumstances, the IDR plans may or may not lower your monthly payments. And it’s much easier to make a decision on what plan you should be on when you can see what you’re eligible for, and compare side-by-side. About 47% of borrowers benefit from federal programs, so it’s worth taking the time to explore.”
- Consider refinancing your private loans. Matson recommends against refinancing federal loans for now, as borrowers irreversibly lose the benefits attached to federal loans when they decide to refinance them privately. But for borrowers of private loans, Matson says there’s little downside to refinancing if you can get a better interest rate. “Sites like Nerdwallet offer calculators that allow you to check out available rates and what different outcomes could look like,” says Matson.
- Check to see if you’re included in the newly expanded Public Service Loan Forgiveness program. “Some of our partners, like Chipper and FutureFuel, can help you easily figure out if you qualify for PSLF,” explains Matson. “The government has lifted some of the restrictions for eligibility through October 2022, so people who didn’t qualify before may qualify now for forgiveness. So far, over 100,000 borrowers have qualified for forgiveness under the expanded program.” Beginning in April 2022, says Matson, borrowers can also appeal to the federal government to reconsider their applications if they were previously rejected by going on Studentaid.gov.
- Avoid scams. “Scams tend to pop up when repayment deadlines approach,” says Matson. “Scammers take advantage of all the confusion to try and get a hold of borrowers’ financial information by making it seem like this is a once in a lifetime chance to refinance or lower your payments before they resume. But your loan servicer already has your details – don’t give out your financial information over the phone. If you aren’t sure if you need to take action, get in touch with your loan servicer directly.”
While the shifting deadlines can be confusing, the steps student loan borrowers can take stay the same, says Matson. “It can be incredibly frustrating and pointless to try to anticipate what’s going to happen at the federal level – so I recommend taking an approach that will work for you regardless of what happens. Whether that means exploring your refinancing or monthly payment options, or looking into the programs that your state offers, there are paths you can take that can only help regardless of what happens with student loans more broadly,” Matson explained. “The first step is evaluating your options.”
But borrowers who make the effort will find it worthwhile, says Matson: “By taking control over your student loans now, you can ensure you’ll be prepared for the ‘worst-case scenario – that payments restart in May – and if the moratorium is extended, you can save the money you were prepared to pay and grow it with interest.”