It’s a burning question for anyone who’s paying down their student loans and that question has been answered. No, the student loan forbearance that was begun in 2020 because of the Covid-19 pandemic shutdown will not be extended again.
As part of the debt ceiling bill negotiated by President Joe Biden and approved by Congress in May 2023, the forbearance ends this autumn. Interest on federal student loans will resume accruing on Sept. 1, 2023, and payments will be due starting in October.
According to Federal Student Aid (FSA) with the Department of Education, “Once the payment pause ends, you’ll receive your billing statement or other notice at least 21 days before your payment is due. This notice will include your payment amount and due date.”
Learning the latest on the student loan forbearance extension and fully understanding these developments can help you make decisions on your student loans.
(Learn more at Are Forgiven Student Loans Taxed?)
What Is Student Loan Forbearance?
The word “forbearance” is a legal term — it means to refrain from exercising a legal right, such as enforcing the payment of a debt.
Some people may assume that this term mainly describes the pause in making loan payments approved by President Biden. But the concept of student loan forbearance predates Covid-19.
While in college, students are urged to fill out their FAFSA form, and many make use of need-based financial aid to pay for their education. After graduation, Certain types of forbearance programs exist for people after they’ve graduated and are struggling with paying down their loans. Life happens, and sometimes people need help.
Types of Student Loan Forbearance
Student loan forgiveness has been obtainable for years. If you think you qualify for any of the forbearance programs because of your income or your career choice, go to the Department of Education website to learn more and obtain forms.
The way it works with some of these forbearances is you won’t have to make a loan payment, or you can temporarily make a smaller payment. However, the loan won’t go away unless it’s paid off or canceled, cautions the Department of Education.
An important new change made in October 2022 concerned interest capitalization.
“Finally, the rules help borrowers avoid spiraling student loan balances by eliminating all instances of interest capitalization not required by statute, which occur when unpaid interest is added to a borrower’s principal balance, increasing the total amount that borrowers may have to pay,” said U.S. Secretary of Education Miguel Cardona in a statement about new federal loan regulations.
The interest capitalization rules went into effect July 1, 2023, which is the effective date specified in the Higher Education Act for regulations issued on or prior to Nov. 1 of a given year.
General or Discretionary Forbearance
Also known as discretionary forbearance, general forbearance is available to you if you can’t make your student loan payments due to medical expenses, financial difficulties, employment change, or other reasons that the federal student aid office may accept.
Most types of forbearance are not automatic — you’ll need to submit a request to your student loan servicer using a form. Also, for some types of forbearance, you must provide your student loan servicer with documentation to show that you meet the eligibility requirements for the forbearance you are requesting
.General forbearances are available for federal Direct Loans, Federal Family Education (FFEL) Program loans, and Perkins Loans. For loans made for all three programs, a general forbearance will be granted for no more than 12 months at a time. If you’re still experiencing hardship when time runs out, you may request another general forbearance. However, there is a limit on general forbearances of three years.
Mandatory Forbearance
For these mandatory forbearance programs, if you prove you’re eligible, your loan server has to grant a suspension of payments. The programs include:
AmeriCorps
You’re eligible for AmeriCorps forbearance if you’re serving in an AmeriCorps position for which you received a national service award.
Department of Defense Student Loan Repayment Program
You might qualify for partial repayment of your loans under the U.S. Department of Defense Student Loan Repayment Program.
Medical or Dental Internship or Residency
You may qualify for a medical or dental internship or residency forbearance if you’re serving in a medical or dental internship or residency program, and you meet specific requirements.
National Guard Duty
If you are a member of the National Guard and have been activated by a governor, but you are not eligible for a military deferment, you may be able to apply for the national guard duty forbearance.
Teacher Loan Forgiveness
If you perform a teaching service and meet certain requirements, you may qualify for teacher loan forgiveness.
Student Loan Debt Burden
Aside from forbearance, the Department of Education also offers income-driven repayment plans. They set your monthly student loan payment at an amount that’s intended to be affordable based on your income and family size.
What are the New Student Loan Relief Programs?
After the Supreme Court ruled against President Biden’s federal loan cancellation program, granting up to $20,000 for eligible loan holders, the White House announced new measures to help people struggling with repaying their federal student loans.
The SAVE Plan is the most affordable repayment plan for federal student loans yet, according to the Department of Education. Borrowers who are single and make less than $32,800 a year won’t have to make any payments at all. (If you are a family of four and make less than $67,500 annually, you also won’t have to make payments.)
For federal borrowers who are required to make payments (depending on your income and family size) and have only undergraduate school loans, the monthly payments will be cut in half — from 10% of discretionary income to 5%. How long people will have to make payments depends on their loan balance.
To protect the most vulnerable borrowers from the worst consequences of missed payments following the payment restart, the DOE is instituting a 12-month “on-ramp” to repayment, running from October 1, 2023 to September 30, 2024, so that financially vulnerable borrowers who miss monthly payments during this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies.
How to Prepare for Return of Student Loan Payment
“Will student loan forbearance be extended?” Is definitely the question people are asking. But for federal student loans put on pause because of Covid-19 shutdowns, the payment extensions are coming to an end.
To find out the size of your payment and length of your loan, contact your loan servicer. It’s possible you will have a different company to deal with than you had before the pause. Millions of borrowers, for example, are to send their federal student loan payments to new loan servicers because FedLoan Servicing, Navient, and Granite State ceased their contracts.
To find out more, visit your account dashboard and scroll down to the “My Loan Servicers” section, or call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243.
Pay Off Your Loans as Soon as You Can
Some people have found that it is worthwhile to pay larger amounts on their loans to get rid of them faster.
You won’t be penalized for paying your student loans early or paying more than the minimum required. However, you should always inform your student loan servicer by email, phone, or mail to apply overpayments to your current balance.
Consider Student Loan Refinancing
Some people holding federal student loans refinance to get different rates and terms. How to refinance your student loans: research private student loan sources, including banks and other financial institutions. The holder of the new loan will pay off the federal loan and you start paying the new entity. Your credit rating, length of employment, and other factors will be key to getting an appealing interest rate.
The disadvantages of refinancing student loans include the fact that you would no longer be eligible for government forbearance programs or income-driven repayment programs on the amount of the loan that’s being refinanced.
Consider Lantern’s Student Loan Refinancing Rates
If you are interested in refinancing your federal student loan, you will need to compare interest rates and terms to find the most advantageous deal. Compare loan rates with Lantern to see what you could qualify for. Your financial “health” will be key to what you can obtain. Once you refinance, you will no longer be able to obtain government forbearance on that part of your student loan.
Lantern By SoFiSoFi receives compensation in the event you obtain a loan, financial product, or service through the Lantern marketplace. This Lantern website is owned by SoFi Lending Corp., a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license number 6054612; NMLS number 1121636. (here). This site is NOT owned and operated by SoFi Bank. Loans, financial products, and services may not be available in all states.All rates, fees, and terms are presented without guarantee and are subject to change pursuant to each provider’s discretion. There is no guarantee you will be approved or qualify for the advertised rates, fees, or terms presented. The actual terms you may receive depends on the things like benefits requested, your credit score, usage, history and other factors.*Check your rate: To check the rates and terms you may qualify for, Lantern and/or its network lenders conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, the lender(s) you choose will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.All loan terms, including interest rate, and Annual Percentage Rate (APR), and monthly payments shown on this website are from lenders and are estimates based upon the limited information you provided and are for information purposes only. Estimated APR includes all applicable fees as required under the Truth in Lending Act. The actual loan terms you receive, including APR, will depend on the lender you select, their underwriting criteria, and your personal financial factors. The loan terms and rates presented are provided by the lenders and not by SoFi Lending Corp. or Lantern. Please review each lender’s Terms and Conditions for additional details.Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website on credit (here)Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.¹SoFi’s Insights tool offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score provided to you is a VantageScore® based on TransUnion® (the “Processing Agent”) data.
Personal LoanSoFi Lending Corp. (“SoFi”) operates this Personal Loan product in cooperation with Engine by MoneyLion. If you submit a loan inquiry, SoFi will deliver your information to Engine by MoneyLion, and Engine by MoneyLion will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders/partners receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Engine by MoneyLion, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Engine’s Licenses and Disclosures, Terms of Service, and Privacy Policy.Personal loan offers provided to customers on Lantern do not exceed 35.99% APR. An example of total amount paid on a personal loan of $10,000 for a term of 36 months at a rate of 10% would be equivalent to $11,616.12 over the 36 month life of the loan.
Student Loan RefinanceSoFi Lending Corp. (“SoFi”) operates this Student Loan Refinance product in cooperation with Engine by MoneyLion. If you submit a loan inquiry, SoFi will deliver your information to Engine by MoneyLion, and Engine by MoneyLion will deliver to its network of lenders/partners to review to determine if you are eligible for pre-qualified or pre-approved offers. The lenders receiving your information will also obtain your credit information from a credit reporting agency. If you meet one or more lender’s and/or partner’s conditions for eligibility, pre-qualified and pre-approved offers from one or more lenders/partners will be presented to you here on the Lantern website. More information about Engine by MoneyLion, the process, and its lenders/partners is described on the loan inquiry form you will reach by visiting our Personal Loans page as well as our Student Loan Refinance page. Click to learn more about Engine’s Licenses and Disclosures, Terms of Service, and Privacy Policy.NOTICE: The debt ceiling legislation passed on June 2, 2023, codifies into law that federal student loan borrowers will be reentering repayment. The US Department of Education or your student loan servicer, or lender if you have FFEL loans, will notify you directly when your payments will resume For more information, please go to here.If you are a federal student loan borrower considering refinancing, you should take into account the new income-driven payment plan, SAVE, which replaces REPAYE, seeks to make monthly payments more affordable, and offers forgiveness of balances that were originally $12,000 or lower after 120 payments, among other improvements. Also, please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as SAVE, or extended repayment plans.
Auto Loan RefinanceAutomobile refinancing loan information presented on this Lantern website is from Caribou, AUTOPAY, Engine by MoneyLion, and each of Engine’s partners (along with their affiliated companies). Caribou, AUTOPAY, and Engine by MoneyLion pay SoFi compensation for marketing their products and services on the Lantern site. Auto loan refinance information presented on this Lantern site is indicative and subject to you fulfilling the lender’s requirements, including but not limited to: credit standards, loan size, vehicle condition, and odometer reading. Loan rates and terms as presented on this Lantern site are subject to change when you reach the lender and may depend on your creditworthiness, consult with the lender for more details. Additional terms and conditions may apply and all terms may vary by your state of residence.
Secured Lending DisclosureTerms, conditions, state restrictions, and minimum loan amounts apply. Before you apply for a secured loan, we encourage you to carefully consider whether this loan type is the right choice for you. If you can’t make your payments on a secured personal loan, you could end up losing the assets you provided for collateral. Not all applicants will qualify for larger loan amounts or most favorable loan terms. Loan approval and actual loan terms depend on the ability to meet underwriting requirements (including, but not limited to, a responsible credit history, sufficient income after monthly expenses, and availability of collateral) that will vary by lender.
BankingSoFi Lending Corp. (“SoFi”) operates this website in cooperation with Engine by MoneyLion presenting promotions for products and services offered by other banks, lenders, and financial institutions. If you select a promotion above, you will be connected to the website of the company offering the product. The promotions presented on this site are from companies that pay SoFi and Engine by MoneyLion compensation for marketing their products and services. This may affect whether a provider is featured on this site and could affect the order of presentation. Lantern and Engine by MoneyLion do not include all providers in the market or all of their available offerings. Click to learn more about Engine’s Licenses and Disclosures, Terms of Service, and Privacy Policy.
What is lifestyle creep & how could it wreck my finances?
Lifestyle creep occurs when your standard of living starts to outpace your actual income. It’s generally related to making more without saving more — foregoing important financial goals, like establishing a proper emergency fund or saving for retirement, in lieu of buying a larger house, nicer car or luxury vacation.
While it’s tempting to start spending any extra money you earn as soon as you, well, earn it, lifestyle creep can expose you and your family to a certain amount of financial risk. After all, there’s no guarantee that you’ll stay at a given income level.
To prevent you from falling prey to lifestyle creep, also known as lifestyle inflation, we consulted Certified Financial Planners, financial advisers and other personal finance experts. Here are 38 ways to avoid lifestyle creep.
For help with your personal finances, consider working with a fiduciary financial advisor. Find an advisor who serves your area today (Sponsored).
Deposit Photos
Keep your standard of living as low as possible for as long as possible, particularly if you’re a recent graduate, says Danielle R. Harrison, a Certified Financial Planner at Harrison Financial Planning in Columbia, Missouri.
“Rather than buying a brand new car, cell phone, or apartment, take that extra money and aggressively pay down your student loans or put away as much as you can for both your short- and long-term goals,” Harrison suggests. “If you’ve never experienced the money, it is much easier to not know what you are missing.”
DepositPhotos.com
“How can you track your spending if you have no idea where it’s going in the first place?” says savings expert Andrea Woroch. “A budget tells your money where to go and keeps you from wasting it on things that don’t matter.”
“Savings” is an essential line item of every budget. Pay yourself first before allocating or upping your discretionary spending.
DepositPhotos.com
There are varying opinions on how much of your total income should go toward savings and retirement goals each month. Moreover, the answer is likely to vary, depending on your full financial profile.
But if you’re looking for some base guidelines, consider applying the 50/30/20 rule, a budgeting method that allocates 50% of your income to essentials, like rent and bills, 30% to discretionary spending and 20% to savings.
laflor
“If you keep a low balance in your checking account, you’re less tempted to feel like you have money to spend,” says Shang Saavedra, personal finance blogger at SaveMyCents.com.
DepositPhotos.com
Set up direct deposit to ensure your access to excess funds is minimal.
“For many of us, we view funds as available to spend the moment they hit our bank account,” says Nicole Gopoian Wirick, a Certified Financial Planner based in Birmingham, Mississippi. “To avoid this, I encourage clients to implement a direct savings plan where money automatically transfers from their bank account to a savings and investment account.”
GaryPhoto / istockphoto
Americans are allowed to put a certain amount of money each year into designated retirement accounts, like 401(k)s, individual retirement accounts (IRAs) or Health Savings Accounts (HSAs). For instance, in 2021, employees can contribute up to $19,500 to their 401(k) plan.
If you aim to hit these limits each year, you can establish a robust nest egg for retirement while keeping lifestyle creep at bay. At the very least, you can ….
Flickr: American Advisors Group
“Many employers are also now offering automated 401(k) deferral increases that will increase the amount you contribute to your employer-sponsored retirement plan by a certain percentage annually,” Harrison says. “Some even coincide the timing with annual merit increases or bonuses.”
istockphoto/standret
When receiving a raise or bonus, make sure you have a firm understanding of how much more income you’ll net after taxes before changing your spending habits.
DepositPhotos.com
“Use the increase to pay down debt or increase your savings,” Harrison says. “Then any extra can be used to increase your standard of living.”
For help with your personal finances, consider working with a fiduciary financial advisor. Find an advisor who serves your area today (Sponsored).
DepositPhotos.com
Monthly commitments can be deceiving.
For instance, “buying a car with a $400 monthly payment vs. one with a $250 monthly payment is only $150 more per month, but a significant $1800 extra per year,” says David J. Haas, a Certified Financial Planner with Cereus Financial Advisors in Franklin Lakes, New Jersey. “I recommend keeping both a monthly and an annual budget and look at any new monetary commitments through the lens of both budgets.”
utah778
A budget is only helpful if you actually use it. Use a budgeting app or a simple spreadsheet to monitor your spending each month.
SolisImages / istockphoto
Many banks, credit card issuers and budgeting apps will send you notification via text, email or push alert when a large transaction hits your checking account. These notifications can serve as a deterrent for large purchases — and also keep you abreast of how much money may be available in an account at any given time.
DepositPhotos.com
As we alluded to earlier, seemingly small monthly purchases can add up over time. Review bank and credit card statements for “zombie charges” — recurring subscriptions, renewals or fees for goods or services that you’re no longer using or don’t really need.
AntonioGuillem / istockphoto
“Re-evaluate every year whether or not you’re saving enough,” says Rick McCallister, a Certified Financial Planner based in Torrance, California. “Adjust as necessary.”
eli_asenova/istockphoto
“Instead of living a life that is ‘expected’ of us from our friends and from media, design a life that goes along with your values,” says Saavedra. “I don’t need to have a fancy car if I don’t want one. I don’t have to have a big house if I don’t want one.”
vgajic
“For a lot of people, Covid-19 has led to lower expenses in certain areas,” says Jason L. Williams, a Certified Financial Planner based in McLean, Virginia. “I’d suggest that people really think about the amount of joy that spending brings before just simply adding it back without any reflection once they are able to do so.”
FamVeld / istockphoto
Otherwise, you’re more prone to popular spending traps as your income increases.
sturti
“Review your goals and make sure that you are on track for living the future life you want,” says Molly Ford-Coates, founder and CEO of Ford Financial Management. “Having your goals front and center reminds you what you are working for.”
DepositPhotos.com
A financial adviser or certified financial planner can help you set up more sophisticated savings strategies if you have a complex account or need more assistance.
Drazen Zigic/istockphoto
“Having someone to hold you accountable for your financial decisions can be an excellent method to avoid lifestyle creep,” says Forrest McCall, owner of personal finance site Don’t Work Another Day.
Check in with this person regularly to make sure you’re not straying too far from financial goals.
DepositPhotos.com
“To set up my clients to succeed, I have them set up two different checking accounts,” says Stephanie Trexler, a Certified Financial Planner, CEO and Financial Advisor of Golden Goose Wealth Planning in Grand Rapids, Michigan. “The first is for bills, which are set up on auto pay each month. The other is for everything else, including fun spending money.”
DepositPhotos.com
Absent other savings goals, experts generally recommend having enough money to cover three-to-six months’ worth of expenses set aside in a designated savings account. Bonus tip: Maximize these funds by looking for an account that offers a competitive annual percentage yield (APY).
designer491 / istockphoto
“Don’t carry balances,” Avani Ramnani, a Certified Financial Planner with Francis Financial, says. “This will ensure that you spend only what is in your bank account.”
Anchiy
If you start over-charging, “cut-up your credit cards and go purely to using cash or a debit card,” Ramnani says. “This will automatically restrict your spending to what is in your bank.”
Nastia11/istockphoto
Resist the urge to “move up” unless a larger home is absolutely necessary.
“If the smaller house continues to fit your needs, you could be saving thousands of dollars in moving and closing costs and even more with the reduced costs associated with your ‘starter’ home, relative to a more expensive house,” says Joyce Streithorst, a Certified Financial Planner based in Melville, New York.
shapecharge
If you’re looking for guidance on how much to spend on a home, the government has described homeowners who spend 30% or more of their income on housing as “cost-burdened” or “house-poor”.
monkeybusinessimages
It’s better to live below your means than above it, so think twice before taking out a loan or making any purchase that is going to put you in the red.
Liderina
If you’re already in debt, prioritize payoffs over spending. There are a variety of strategies you could utilize — we’ve rounded up 50 of them right here.
Ivanko_Brnjakovic / istockphoto
A good credit score helps you qualify for the best deals on credit cards, mortgages and other loans — leaving more money for saving and responsible spending.
You can maintain good credit by making on-time payments, keeping credit card balances low and limiting the number of new credit applications at any given time. Learn more about credit scores.
DepositPhotos.com
“When we bombard ourselves with images of others ‘best’ lives it is hard to not yearn for more. Spend time finding what is most important to you,” Harrison says. “Because of the hedonic treadmill, spending more on consumer products doesn’t make us happier in the long-run.”
DepositPhotos.com
“Just because you have more money to spend doesn’t mean you should waste it because you don’t feel like looking around for savings,” Woroch says.
There are plenty of savings tools, browsers and sites that can help you quickly comparison-shop and find discounts. Check out this guide for 50 ways to save more.
Adobe
For “some of my favorite luxury items, I shop thrift stores or online platforms like Poshmark and Ebay,” Saavedra says. “I always tell myself ‘once you use a new item once, it is used.’ So there is very little difference to me in buying used vs. buying new, other than the savings.”
DepositPhotos.com
Resist the urge to spend all of your tax refunds, annual bonuses or other windfalls on pricey wants as opposed to needs. However …
Wavebreakmedia
“Avoiding lifestyle creep can be similar to straying from a healthy diet,” says Scott A. Bishop, a Certified Financial Planner based in Houston. “Most don’t do well on restrictive diets as they also do not do well with restrictive (seemingly punitive) budgeting. If you are having financial success, enjoy some of your successes, but pay yourself first.”
DepositPhotos.com
Control splurges by setting up an account for them specifically. Joseph R. Stemmle, a Certified Financial Planner based in Richmond, Virginia, keeps a “treat yourself” account, inspired by Amy Poehler sitcom “Parks and Recreation.”
“If I do want to treat myself or splurge on something, I know I have money set aside that won’t impact my overall budget,” he says.
FatCamera
“Focus on creating experiences and quality time together with family and friends, as opposed to buying,” says Marguerita M. Cheng, a Certified Financial Planner based in Potomac, Maryland.
Need help managing your finances?
Learn how you can start saving money right now.
Additionally, a financial advisor can help you work out the details of your personal finances. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.(Sponsored)
This article was produced and syndicated by MediaFeed.
grki
DepositPhotos.com
Featured Image Credit: sasirin pamai/istockphoto.
