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What Happens When the Federal Student Loan Freeze Ends on October 1, 2021?

Kat Tretina
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Thanks to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, federal loan borrowers got some help with their student loans. Approximately 50 million borrowers in the federal Direct loan program are eligible for the CARES Act’s benefits, including the federal student loan pause on payments.

These relief benefits were recently set to expire on January 31, 2021 – but there has been a big update.

Because of newly elected President Joe Biden’s request to the U.S. Department of Education on his first day of presidency, the CARES Act’s protections are now set to continue to September 30, 2021.

This means that payments and interest charges will now resume on October 1, 2021. Here’s what that means for your student loans.

The CARES Act’s timeline and impact on student loans

Due to the coronavirus pandemic, Congress passed the CARES Act to help people whose finances were affected. As part of the CARES Act, the U.S. Department of Education suspended all student loan payments, stopped collections on defaulted student loans, and set interest rates at 0%.

The CARES Act’s student loan benefits were originally due to expire in September 2020. But under former President Trump, the protections were extended until January 31, 2021.

Now, the protections have been further extended through September 30, 2021 thanks to a recent request by President Joe Biden during his first day in office.

If you had eligible federal loans, you haven’t been required to make payments since March, and no interest has accrued on your loans since the CARES Act was implemented. That will now continue until payments and interest resume on October 1, 2021.

What happens to federal student loans on October 1, 2021?

The current CARES Act student loan benefits will expire on September 30, 2021.

Unless there are changes between now and the expiration date, the federal student loan pause on payments will end. Payments will resume on October 1, 2021, and interest will begin accruing on your loans starting on that date.

How will Biden affect student loans and the CARES Act?

In January, Joe Biden was inaugurated as the next President and replaced Donald Trump. With Biden in office, many student loan borrowers are hopeful for additional relief, including student loan forgiveness.

In Biden’s released proposals, he has made some suggestions on what he’d do to help student loan borrowers:

  • CARES Act: Under Biden’s stimulus plan, and due to his recent request to the U.S. Department of Education, the CARES Act’s benefits for federal student loans are officially extended through September 30, 2021. With this extension, your student loan payments are suspended and interest is waived until that date.
  • Student loan forgiveness 2021: To address the student loan crisis, President-elect Biden has proposed $10,000 of loan forgiveness for all federal loan borrowers, providing instant help.

Federal student loan freeze alternatives

While it’s possible that the CARES Act student loan benefits will be extended again, it’s important to come up with a back-up plan in case that doesn’t happen. Right now, you should plan for payments and interest charges to begin on October 1, 2021.

If you cannot afford your payments, consider these alternative strategies for managing your loans:

1. Apply for loan deferment or forbearance

If you have federal loans and are unemployed or dealing with a medical emergency, you might be eligible for a federal deferment or forbearance. With these options, your loan servicer will allow you to temporarily suspend your payments, even after the CARES Act expires.

In most cases, interest will accrue during your deferment or forbearance period. However, not having to make your minimum payments can give you time to find a job or rebuild your savings.

2. Consolidate your loans

Federal loan borrowers can also take advantage of Direct Consolidation Loans. With this approach, you combine your loans into one. When you consolidate, you can extend your repayment term up to 30 years. With a longer loan term, you’ll pay more in interest charges over time, but you’ll also reduce your monthly payments and get more breathing room in your budget.

Consolidating certain loans also can make you eligible for other federal benefits, such as income-driven repayment (IDR) plans. For example, Parent PLUS Loans aren’t eligible for IDR plans unless the borrower consolidates the loan first.

3. Enroll in an income-driven repayment plan

For those who cannot afford their monthly payments under a 10-year Standard Repayment Plan, IDR plans can give you substantial aid. Available only to federal loan borrowers, IDR plans extend your repayment term and base your monthly payment on a percentage of your discretionary income. Depending on your family size and income, you might be able to significantly lower your monthly payment.

Plus, you might qualify for loan forgiveness with an IDR plan. At the end of your repayment term — 20 or 25 years, depending on your repayment plan — your loan servicer will forgive the remaining balance on your loans if you have one. However, the forgiven amount might be taxable as income, so make sure you set aside some money for your tax bill.

4. Refinance your student loan debt

Once the CARES Act expires on October 1, 2021, refinancing your student loans can be a smart idea.

While the CARES Act was in place, it likely didn’t make sense for you to refinance; payments were suspended, and interest was waived. But once payments and interest resume, student loan refinancing can help you save money and pay off your loans faster.

With refinancing, you apply for a loan from a private lender that is big enough to pay off your existing student loans. Your refinanced loan will have a different interest rate and loan term that you had previously.

Due to changes in the market, student loan refinancing interest rates have reached historic lows, so now is an excellent time to refinance your debt.

Just how effective is student loan refinancing? Consider this example: Jeff had $40,000 in student loans at 4.5% interest and a 10-year repayment term. Over the course of his repayment, Jeff would pay a total of $49,746; interest charges would cost him over $9,000.

To save money, Jeff decided to refinance his loans. He opted for an eight-year term and qualified for a 3.00% interest rate. By refinancing his loans, he’d repay a total of just $45,042; refinancing helped him save over $4,700.

 Original LoanRefinanced Loan
Interest Rate4.5%3.00%
Loan Term10 Years8 Years
Minimum Monthly Payment$415$469
Total Interest$9,746$5,042
Total Repaid$49,746$45,042
Total Savings: $4,705

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