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As you probably already know if you are repaying federal student loans, the last year’s CARES Act placed a moratorium on federal student loan repayment and interest accrual. Collections on defaulted federal loans were also halted. That moratorium expired under the terms of the Act on September 30, 2020. However, that deadline was twice extended by executive action under the Trump administration (on August 8, 2020, and on December 5, 2020) and was set to expire on February 1, 2021.
On January 20, 2021, the Acting Secretary of Education was instructed by President Biden to “extend the pause on federal student loan payments and collections and to keep the interest rate at 0%.” In the new administration’s January 20, 2021, fact sheet, it indicated that the current pause will continue “until at least September 30, 2021.”
Now is the time to consider whether to refinance, select a new repayment plan, or prepare to request a hardship forbearance.
You can breathe a little easier for a few months if you are still repaying federal student loans. With that said, if you have been affected by stealth lay-offs, the recent round of BigLaw austerity, or have suffered other economic hardships because of the pandemic, now is the time to begin looking into selecting a new repayment plan or requesting an economic hardship deferral before repayments resume. The Education Department has already stated that the resumption of payments is expected to be chaotic so being prepared to take action in advance will be key.
Now is also an excellent time to begin considering refinancing to a lower rate with a private lender before repayments resume. Even if you have already refinanced, it is worth periodically checking to see if you can secure a lower rate. Very few lending institutions charge extra fees to refinance student loans like what you must pay when refinancing a mortgage. So, there really is no downside to periodically refinancing so long as rates continue to trend lower.
I have personally used SoFi and Earnest to refinance student loans. Both offered very competitive rates. SoFi has the best user interface I have come across. It also offers multiple perks like free will drafting through Ladder, no cost financial planning advice, and free career coaching that may be useful to you. The one unique feature Earnest has over the competition is that it allows you to set up bi-monthly payments. I found that feature very helpful for smoothing out cashflow when aggressively paying down loans.
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If you are interested in checking your rate for a SoFi Student Loan Refi, click through my referral link and you can get a $310 welcome bonus ($10 just for checking your rate and $300 for refinancing). If you are interested in checking your rate through Laurel Road, click through my referral link and you can get a $200 reward when you refinance. A $200 bonus is also available when refinancing with Earnest through my referral link.
No loan forgiveness is expected through executive action.
Despite early hopes that the Biden administration, spurred on by Senators Warren and Schumer, would take executive action to cancel at least a portion of existing student loan debt, that now seems unlikely. Indeed, according to Market Watch, President Biden indicated he would not do so. It now appears that support exists for congressional action cancelling up to $10,000 in student loan debt subject to certain limitations. Among the likely limitations will be an income limit of $125,000 per year. Given that a first-year associate in the New York market is now making $190,000 base, very few BigLaw lawyers will be eligible unless something changes dramatically. The potential loan forgiveness could still be relevant, however, for many in public service or in mid-size firms.
I will continue to provide periodic updates about executive and congressional actions impacting student loan repayment.
