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What to know as the pause on student loans is about to expire

College students heading to campus this fall may be confused by recent headlines on student debt and wonder: Does this affect me?

Will the pause on student loan repayments that began at the start of the pandemic be extended? Will some student debt be erased?

“It’s a very confusing time,” said Regan Fitzgerald, head of the Pew Charitable Trusts student loan success project.

Here is an overview of what is known and unknown, and what students should consider.

The pause on payments and interest on most federal student loans is scheduled to end August 31. An extension would have less impact on students still in school as they are not yet repaying their loans, financial aid experts say. (Even school borrowers, however, benefit from the break on loan interest.)

And while it’s still unclear whether the Biden administration will act to forgive some student debt, any relief may be limited. It can be targeted to borrowers with incomes below certain limits and loans borrowed before a given date (possibly before June 30 this year, according to Politico) – suggesting that students who borrowed as recently as the year academic year 2021-22 could benefit from it. But until the plans are announced, “we don’t know what the parameters will be,” Ms Fitzgerald said.

In an emailed statement, a spokesperson for the Department of Education said “the department’s review of large-scale debt cancellation is still ongoing and no decision has been made. was taken”.

Because the rules seem to be constantly changing, it’s important for borrowers to keep up to date with student loan options and policies, Ms. Fitzgerald said. “Financial awareness of student loans is very important,” she said.

Students borrowing money for the fall should focus on what they need rather than speculating on whether to wipe out debt, said Michele Streeter, senior director of college affordability at the Institute for College Access and Success, a non-profit organization that promotes college affordability.

“I would strongly advise that no one borrow on the assumption that any loan will be forgiven in the future,” Ms Streeter said. “If I was a borrower, I would cut out the noise and focus on what I need to borrow right now.”

Mark Kantrowitz, a financial aid expert, advises students to borrow “only what you need, not as much as you can.” Your total debt when you graduate should be less than your projected annual starting salary, he said — ideally, “much less.”

Abby Shafroth, an attorney at the National Consumer Law Center, said students are rightly worried about borrowing too much, but they should also be wary of borrowing too little. “You don’t want to borrow less but don’t have enough for the books,” she said.

The Consumer Financial Protection Bureau offers tools on its website to help you determine how much you can safely borrow based on your financial situation and anticipated income after graduation.

Here are some questions and answers about student loans:

On July 1, federal student loan rates for undergraduates increased to 4.99% for loans made through June 2023. Federal loan rates are set each spring based on a formula and apply to all new loans made in a given academic year. The rate is fixed for the term of the loan. So if your loan rate for the last academic year was 3.73%, that won’t change. (Most student loan rates are temporarily set at zero during the repayment break; regular rates should apply when the break breaks.)

In general, dependent students can borrow up to $5,500 in federal loans in their first year, $6,500 in their second year, and $7,500 in each of their third and fourth years, with an overall cap of $31,000 ( in case graduation takes longer). Borrowing limits are higher for independent and graduate students. Parents can borrow so-called Plus Loans, at higher interest rates, if additional funding is needed. (Private lenders also offer student loans, but the loans do not have federal loan consumer protections and are not included in the payment break.)

That seems increasingly likely, as the August deadline nears with no plans to restart payments announced. “I would say it’s very likely there will be another extension,” Ms Streeter said. Mr Kantrowitz said he thought the break could be extended until next year.

Loan servicers – the companies that send statements and handle payments for borrowers – have received ‘strong advice’ from the Department for Education not to notify borrowers of the resumption of payments, said Scott Buchanan, director executive of the Student Loan Servicing Alliance, an industry group. If the repayment pause is not extended, he said, “we have missed an opportunity to prepare for it.”

The New York Times offers a guide to help borrowers prepare for repayment.

A spokesperson for the Department of Education said it would communicate directly with borrowers about the end of the payment pause when a decision is made, adding that President Biden has indicated that it will happen soon. here at the end of August.