Editorial Team

The CARES Act is Extended to 2022 — What Does It Mean For Student Loan Refi?

On August 6th, 2021, the Biden administration announced an extension to the CARES Act. While the moratorium was set to expire on September 31st, borrowers who hold federal student loans will now be interest and payment-free until January 31st, 2022. The pause on federal student loan payments, also referred to as the “freeze,” has provided necessary relief to millions of student loan borrowers over the past year and a half. Borrowers have been presented with opportunities to focus on other aspects of their lives, including health, family, and additional important financial decisions.  For those who needed this financial relief, the extension comes as good news by offering additional time to catch up on other financial payments or to get ahead by continuing to make payments free of interest charges. What does this extension mean for student loan borrowers now and what should borrowers be focusing on with a clear expiration date on the horizon?

The extension of the moratorium on student loan payments provides opportunities to: 

Get ahead of your student loan debt

If you are in a position where you are able to continue making student loan payments, perhaps you should take advantage of the opportunity. This is an opportunity to reduce your principal balance while your interest rate remains at zero percent. As soon as payments and interest begin again, your interest rate will be applied to a lower balance and you’ll end up saving in the long run. 

Taking that idea a step further, you could begin making short-term, safe investments and put the money you would be paying towards your student loans to work for the next 6 months or so. Since there is no interest or payments due, you can position those funds to grow until repayment on your federal loan(s) resumes. Unifimoney can help you effortlessly and automatically build your investment portfolio with its AI powered investment platform.

Getting ready for repayment in February 2022

While much has slowed since 2020, many things have changed for you and your loans over the course of the freeze. It’s been a long time since your last federal student loan payment was due, so go ahead and take this time to make sure you’re all set to successfully reenter repayment when payments resume. 

Log in to the NSLDS or contact your federal student loan servicer to confirm when you will be required to start making payments and what the amount will be. Your budget has likely changed during the pandemic and if you expect to have difficulty making payments when they resume, you should talk to your servicer about any hardship forbearance options available before their phone lines are flooded with calls in February. More housekeeping items include making sure you have direct deposit set up with the appropriate checking or savings account (is it active, are there actually funds available? etc.) so you don’t inadvertently miss payments and incur late fees or hits on your credit report.

Refinancing any private student loans

Whether you decide to continue making federal student loan payments during this time or take advantage of the financial relief, interest rates to refinance private student loans are at historic lows. 

Savings matter, and having the opportunity to lower your interest rate or reduce your monthly payment on your private student loans now could have a huge payoff down the line. When you refinance your student loans, you can opt to just include your private student loans and leave your federal student loans as-is. 

Refinancing offers a path to get better terms (rates) for your loans so you either pay less now, making room for other higher interest expenses, or shorten your loan term and pay off student debt while incurring a lower amount of interest.  

With 6 months to go until repayment resumes for federal student loans, private student loans are great candidates for immediate refinancing. Private student loans are not paused under the CARES Act and rates for consumer loans have hit record lows this summer. There is no limit to how many times you can refinance your student loans, and come February you could refinance your federal loans too as long as you are comfortable forgoing some of the federal benefits like Public Student Loan Forgiveness and Income Based Repayment. 

If you want to know how much you could be saving, check your rate for free – and with no impact to your credit – with our partners at LendKey, a digital lending platform that connects community banks and credit unions to student loan borrowers.

It’s OK to take advantage of the relief

Many are still suffering from financial hardship as a result of the pandemic and the extension of the pause on federal student loans provides a lifeline to millions of people. If necessary, it is OK to use this time to focus on other areas of financial stability, like catching up on bills or paying down any high-interest credit card debt.  This will help ensure that you don’t fall behind on other payments when your student loan repayment period begins again. 

It may also be a good way to help mitigate financial stress in a time filled with uncertainty and heightened financial pressures. Studies have shown that debt can cause substantial mental and emotional stress, particularly for those with families and numerous other responsibilities. Of course, everyone is different, and for some, taking this time to attack higher-interest debts can be a relief to lower one’s overall cost of personal debt. Put another way, by putting each incremental dollar to the highest rate debt, you’ll end up paying the least over the life of all your debt. Others, however, are more comforted by the complete payoff of an obligation, so using this time to close out other loans or lines of credit can also be a good way to improve your personal balance sheet and your state of mind.

Still Need Help?

Do you still have questions or concerns? If you’re still interested in learning more about your options with student loans, check out the LendKey blog which includes infographics, calculators, and more.

This can certainly be a stressful and confusing time, but there is clarity on the horizon and you can now start planning and acting to ensure you’re in the best position possible to successfully repay your student debt once federal loan payments resume.  If you are fortunate to be mostly unaffected by the pandemic, at least financially, treat this extension of the federal loan freeze and low-rate environment as the opportunity it is to get ahead and expedite your path to a student-debt-free life.

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The above does NOT constitute an offer, solicitation of an offer, nor advice to buy or sell specific securities. The opinions listed above are not the opinions of Unifimoney Inc. or Unifimoney RIA, Inc. but represent the opinions of independent contributors. These contributors may or may not hold positions in the stocks discussed. Investors should always independently research any stocks listed and form their own opinions, while recognizing that any investments made may lose value, are not bank guaranteed and are not FDIC insured.