Federal student loans are due soon: What to know

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With interest rates near historic lows, now could be a good time to consider a student loan refinance. (iStock)

If you have federal student loans, you're likely aware that the clock is ticking down on federal relief efforts. Without another executive order from President Trump or the passage of a new coronavirus stimulus package, you'll need to be prepared to restart payments to your loans on January 31, 2021.

Contemplating a student loan refinance is one option you might consider; taking an extended forbearance another.

If you're looking to lock in some of the lowest fixed rates ever, then refinancing your student loans may be the right move for you. Multi-lender marketplace Credible can help you compare private lenders at once to determine if now is the right time to refinance, based on your loan type, loan amount, and more.

As January draws closer, here are some of the most important things to keep in mind about student loans.

How the CARES Act affected student loans

The Coronavirus Aid, Relief and Economic Security Act yielded a number of financial benefits, including three key provisions for federal student loan borrowers. Specifically, the CARES Act:

Temporarily paused federal student loan payments
Reduced interest rates on eligible loans to 0%
Stopped the collection of defaulted student loan debt

These benefits were set to end on September 30, 2020, but were extended through January 31, 2021. Without further government action, borrowers are expected to begin resume making payments to their loan servicers in February.

If you have private student loans, you may want to consider refinancing your student loans while rates are hitting record lows. With a refinance, you're getting a new loan to pay off your existing student loans, ideally with a lower rate and a lower monthly payment. You can use Credible's free online tool to compare multiple lenders within minutes.

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How should I pay off my student loans?

If you have federal student loans, you still have some time to plan for how you'll manage them once CARES Act protections end. Some options you might consider include:

Student loan refinancing
Setting up automatic payments
Income-based repayment
Consolidate federal loans
Extend your student loan forbearance

1. Student loan refinancing

A student loan refinance involves taking out a new loan to pay off existing loans. If you have federal student loans you could refinance them using private student loans.

Loan refinancing could yield lower rates and lower payments, both of which could make managing student debt easier. You can visit Credible to compare student loan refinancing rates from multiple lenders without affecting your credit.

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2. Setting up automatic payments

Automating loan payments is a simple personal finance hack that can make managing student loans easier. Putting monthly payments on autopilot can help you avoid late payments and late fees, as well as credit score damage. Many loan servicers also offer an interest rate discount for automating loan payments.

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3. Income-based repayment

Income-based repayment plans can offer lower payments if you're having trouble keeping up with your federal student loans because of a change in income. Choosing an income-based repayment option is helpful for saving money in the near-term since you could significantly lower your payment. And it could help you qualify for student loan forgiveness.

To easily compare student loan refinancing rates online, check out Credible. You can get refinancing rate quotes from multiple lenders without negatively affecting your credit score.

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4. Consolidate federal loans

Consolidating federal loans won't result in lower rates. But it can make managing federal student loans simpler since you'll have just one loan payment going forward. That could make it easier to budget for student loan repayment each month.

Again, if you have private student loans, you'll want to refinance those student loans instead.

Credible can reveal what refinance rates you qualify for. You can compare student loan refinancing rates from up to 10 lenders without affecting your credit. Plus, it's 100% free!

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5. Extend your student loan forbearance

You may be able to continue pausing payments temporarily. You may be able to ask for deferment or forbearance periods that allow you to take a break from repaying your loans. You could then use this time to explore student loan refinance or consolidation options.

You may also be able to make use of any grace periods you have to defer payments. With most types of federal student loans, you have a six-month grace period after you graduate, leave school, or drop below half-time enrollment.

Private student loan borrowers who are not getting any relief during the coronavirus pandemic should consider other options to lower student loan payments. Visiting Credible to explore refinancing options could be a good first step.

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Could federal student loan relief be extended?

It's possible that you may be able to defer making payments to your loan balance beyond the end of January. But for that to happen, one of these scenarios would likely have to take place:

President Trump could sign another executive order extending CARES Act forbearance beyond the end of January
Congress could pass another coronavirus stimulus package that includes student loan relief before the end of the year
President-elect Biden could sign an executive order offering federal student loan relief once he takes office on January 20, 2021

Whether the current administration or the next one opts to extend federal student loan relief, it's important to plan now as if you will be making payments come February. And remember that if you have private student loans the CARES Act protections don't apply.

The good news is that you can still pursue student loan refinancing to manage private student loans. With interest rates as low as they are, now could be good for a student loan refinance if you're interested in saving money or getting lower payments.

You can learn more about student loan options by visiting Credible and comparing rates from multiple lenders. It's also helpful to use an online student loan refinancing calculator to estimate what your new monthly loan payments might be.

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