ACCC: Borrowers need to prepare now for the end of student loan forbearance; What to expect and how to be ready

American Consumer Credit Counseling is preparing consumers for student loan repayments that are expected to resume on Oct 1

Boston, MA – February 25, 2021

American Consumer Credit Counseling announced today it is advising clients and other consumers to be prepared for the end of student loan forbearance – which was extended through September 30 by an executive order from President Biden.

The extension gives borrowers more time to plan or make changes to their federal student loan payments. National nonprofit American Consumer Credit Counseling (ACCC) is preparing consumers for what they can expect when the forbearance period ends and payments resume.

“It is important that consumers are prepared and come up with a plan for when student loan repayment begins,” said Steve Trumble, President and CEO of American Consumer Credit Counseling. “If you can afford to make extra payments on your student loans, that could help you pay them down faster and reduce the amount of interest you pay overall.”

Beginning in March 2020, the CARES Act relieved federal student loan borrowers from making payments and set interest rates at zero. The CARES Act does not cover private student loans, although several states came together to create the Multi-State Initiative, which ensured borrowers had a 90-day forbearance, no late payment fees, and no negative credit reporting. During this period of no interest, once the consumer pays off all prior interest accrued before March 2020, payments will be applied to their principal balance.

When the forbearance period ends, borrowers will receive a billing statement at least 21 days before their first payment is due. Whether a borrower’s monthly payments increase or decrease will depend on whether they paid down any interest or a portion of their principal during the forbearance period and if any of their interest capitalizes. Any interest accrued prior to March 2020 will be capitalized, which means it will be added to the principal balance when repayment begins. To avoid capitalization, consumers should make payments during the forbearance period towards their owed interest.

According to a recent survey by Student Loan Hero, 55 percent of borrowers are not confident they will be able to make consistent student loan payments once the forbearance period ends. Since the CARES Act went into effect, almost 42 percent of borrowers have not made any monthly payments. The survey also found that almost a third of borrowers plan to file for forbearance once the forgiveness period ends. According to CNBC, almost 90 percent of student loan borrowers have taken advantage of their ability to pause their payments throughout the pandemic.

ACCC has seen that consumers’ budgets are already tight with nothing budgeted for student loans after not having to make payments for the majority of 2020. Credit counseling agencies, like ACCC, can help consumers review their financials and create a debt management plan. Each repayment plan is different based on the consumer’s personal financial situation.

“It is important that student loan bowers avoid default. When you default on your student loans, you will suffer negative consequences such as damaged credit, dramatic loan balance increase, and more,” added Trumble.

If consumers already know they won’t be able to start repaying their student loans when forbearance ends, use this time to consider the following:

  1. Contact a credit counseling agency.
  2. Don’t wait to reach out to your student loan servicer. Make a call to go over how much you owe, the interest rate, what your monthly payments will be, and all the repayment options that are available to you.
  3. Consider other more affordable payment plans of loan consolidation. Monthly payments on some income-driven plans can be as low as $0. This may be a good option for those who are struggling with their finances due to furlough or unemployment.
  4. Postpone payments through deferment or forbearance programs to avoid delinquency/default.
  5. Consider refinancing your student loans by combining federal and private loans into one with a lower interest rate.

About American Consumer Credit Counseling

American Consumer Credit Counseling (ACCC) is a nonprofit credit counseling 501(c)(3) organization dedicated to empowering consumers to achieve financial management through credit counseling, debt management, bankruptcy counseling, housing counseling, student loan counseling, and financial education concerning debt solutions. To help consumers reach their goal of debt relief, ACCC provides a range of free consumer personal finance resources on a variety of topics including budgeting, credit and debt management, student loan assistance, youth and money, homeownership, identity theft, senior living, and retirement. Consumers can use ACCC’s worksheets, videos, calculators, and blog articles to make the best possible decisions regarding their financial future. ACCC holds an A+ rating with the Better Business Bureau and is a member of the National Foundation for Credit Counseling® (NFCC®). For more information or to access free financial education resources, select free credit counseling.