Are You Ready for the End of the Student Loan Federal Interest Holiday?

Everyone loves a holiday, and the best holiday is one that saves you money! The Federal student loan interest holiday began on March 20, 2020, when the federal government suspended loan payments, stopped collecting on defaulted loans, and dropped the interest rate to zero on U.S. Department of Education-owned federal student loans. The temporary relief became law on March 27, 2020 and was scheduled to expire that year on September 20, 2020.

As the pandemic continued, the expiration deadline for student loan relief was extended several times, to Dec. 31, 2020, then Jan 31, 2021, and is currently scheduled to expire on September 30, 2021.

The loan holiday brought some much-needed relief to those holding federal student loan debt, but the question people are asking now is: Will the deadline be extended again?

Will the deadline be extended again?

The short answer is: No one knows.

Education Secretary Miguel Cardona, when asked on May 3, 2021, whether the deadline would be extended again said, “It’s not out of the question, but at this point it’s September 30.” An extension isn’t out of the question but if, and until, an extension is announced, it’s probably best to assume to assume that the holiday will expire on Sept. 30th and prepare accordingly.

What should I do if I hold federal student loan debt?

Here are some steps you can take before the Federal Student Loan holiday ends:

1. Keep in mind that even if there is an extension, this holiday won’t last forever, so you should be prepared to restart your loan payments at some point. Given the past 16 months, it was probably easy to get used to having that extra money each month – are you ready to start making payments again? Ideally, you’re saving for that eventuality right now. If not, think about setting aside some money to help ease the transition back into your normal payment schedule. Check your federal loan balance(s) to determine how much you owe and what your payments will be once the holiday is over. If your income or expenses have changed due to the pandemic, factor that into your monthly budget.
2. Check the current interest rates and compare them to what you’re paying now. Interest rates are at near historic lows, but the Federal Reserve’s latest guidance is that it plans to start raising rates in 2023. This is subject to change depending on economic conditions but the trajectory for interest rates appears to be higher from here rather than lower.
3. If the interest rates currently being offered are attractive, you may re-strategize your current repayment plan and consider refinancing one, some, or all of your federal loans. The chief advantage of refinancing is that you could potentially save a lot of money by locking in a lower interest rate now. The difference of even 0.5% or 1.0% could translate into thousands of dollars of savings over the life of your loan. Other advantages of refinancing include: a single monthly payment on one consolidated loan, paying off your loans faster if you adjust your loan to a shorter term, being able to work with a lender of your choice, and taking advantage of unique perks from private lenders, such as the Laurel Road Linked Savings^SM, an FDIC-insured* savings account that offers additional rate discounts based on your savings account balance when you refinance your student loans with Laurel Road. This account also has with no minimum balance to open and $0 monthly maintenance fees. Remember that many lenders will let you check your rate without affecting your credit score,¹ so it may be worth checking your refinancing rate now to compare your options.

The chief disadvantage of refinancing is that you’d lose access to government programs and benefits, like forbearance and income-based repayments. As a reminder, the Federal student loan interest holiday is one of these programs, so you’d be losing access to that, among other federal benefits and programs. For more information on federal student loan repayments, visit https://studentaid.gov/.

If you are considering refinancing your student loans now, you can read more here.

* Deposits are insured up to the maximum allowable limit. Laurel Road is a part of KeyBank N.A. All single accounts owned by the same person at KeyBank N.A. are added together and insured up to the maximum allowable limit. To learn more, contact the FDIC toll-free at 1.877.ASK.FDIC (1.877.275.3342) or visit www.fdic.gov.

What should you do next?

Whatever you do, it’s a good idea to make sure make sure all your contact and banking info is up-to-date with your loan servicer and save as much money as you can for your future loan payments. All holidays eventually come to an end eventually, and this one will too, so be prepared!