What to do when federal student loan relief runs out

Multi byline for Allen Wastler and Shelly Gigante

By Allen Wastler and Shelly Gigante
Allen Wastler and Shelly Gigante, both former financial journalists, write extensively on personal finance for MassMutual.
Posted on Nov 22, 2022

While recent government action has provided some breathing room, federal relief measures for student loan debt payments will likely come to an end eventually, and millions of borrowers will be forced to resume making payments again.

Amid the uncertainty, however, there are steps that some borrowers could take now to prepare. These include:

Such options may not be available for all borrowers. Still, they are worth investigating.

Pandemic relief fading

Following the COVID-19 outbreak and the resulting economic downturn, payments and interest on all federal student loans were temporarily suspended under the relief program outlined in the CARES Act. That allowed some 40 million student borrowers to pause their payments without interest on federally-held student loans, including Federal Family Education Loan and Direct Loan programs, during the COVID-19 crisis.

While that relief did not extend to privately financed student loans, nine states worked with private loan institutions at the time to establish a voluntary relief program.1 This program allowed borrowers to suspend their payments for up to 90 days without late fees or credit repercussions.

Taking relief measures further still, the Department of Education in March 2021 suspended collections on defaulted federal student loans held by 1.14 million students who borrowed under the Federal Family Education Loan Program and later defaulted.

FFEL loans, which are guaranteed by the federal government but held by private lenders, were not included in the initial COVID-19 relief program. As a result, borrowers who fell behind on their FFEL payments during the pandemic were still being subjected to wage garnishment and collections.

Student loan relief programs have given substantial breathing room to millions of borrowers, but it was unclear how long that reprieve would last.

Originally, the student loan payment pause was due to expire in September 2020, but it was extended seven times amid the ongoing economic fallout from COVID-19. Additionally, the White House announced plans for a new debt forgiveness program that would cancel $10,000 of federal student loan debt for borrowers earning less than $125,000 ($250,000 for married couples who file taxes jointly.) Pell Grant recipients will be eligible for up to $20,000 in loan forgiveness. Borrowers would qualify for the debt relief program based on their income in either tax year 2021 or 2020. However, legal challenges have put implementation of that program on hold. As a result, the student loan payment pause is being continued into 2023.

Given that the economy is still vulnerable, however, a substantial number of student loan borrowers may still have a difficult time making those payments when they eventually come due and may default as a result.

To minimize the risk of default, borrowers should be sure they select the loan repayment option that works best for them. For example, an income-based repayment plan caps loan payments based on a portion of their income. In some cases, that payment obligation may be as little as $0.

Default can be costly

Default can have dire long-term financial consequences. For starters, it will damage your credit score, which means you are more likely to pay higher interest rates on credit cards, home and auto loans, and other forms of consumer credit. According to the U.S. Department of Education, you may also have trouble:2

  • Signing up for utilities.
  • Securing homeowner’s insurance.
  • Obtaining a cell phone plan.
  • Getting approval to rent an apartment (since credit checks are generally required).

If your credit score sinks low enough, you may be ineligible to borrow at all until you pay off your debt and raise your score. Negative payment information (such as collections and late payments) remain on your credit report for seven years, while Chapter 7 bankruptcies remain for up to 10 years.3

In the case of federal student loans, a default can also result in wage garnishment, collection fees, and future income being withheld from tax refunds and Social Security. The entire unpaid balance of your loan and any interest you owe would immediately become due (called acceleration), you would no longer receive deferment or forbearance, and you would lose eligibility for other benefits, including the ability to choose a repayment plan, the Department of Education reports.

Negotiating with lender

Lenders, who would prefer to have the loans they extend paid back rather than go into default, will often work with distressed borrowers to allow for the repayment of a loan on different terms.

In the case of the federal government, various programs allow for deferment or changing repayment schedules depending on the type of loans. Income-driven repayment programs are also available, which cap payments based on the borrower’s income and family size.

In August 2022, the White House proposed a revamped income-driven repayment plan to reduce future monthly payments for lower- and middle-income borrowers. It would:

  • Require borrowers to pay no more than 5 percent of their discretionary income monthly for undergraduate loans, down from 10 percent under current plans.
  • Raise the amount of income that is considered "non-discretionary" to protect it from the repayment calculation, ensuring that no borrowers earning less than 225 percent of the federal poverty level will have to make a monthly payment.
  • Forgive loan balances after 10 years of payments, instead of the current 20 years, for borrowers with loan balances of $12,000 or less.
  • Cover the borower's unpaid monthly interest so that no borrower's loan balance will grow as long as they make their monthly payments.

For private student loans, the terms are set by each individual lender. But many lenders will negotiate interest and repayment options if approached. Leniency often depends on the borrower’s income and repayment history.

Refinancing options, rate locks

While refinancing a private student loan does not eliminate the principal debt obligation, it can make repayment more manageable and chip away at the interest expense. That’s because refinancing amounts to essentially taking out a new loan to repay your old loan, but ideally at a lower interest rate. And a lower interest rate can mean substantial savings over time.

But interest rates are starting to rise, limiting the appeal and practicality of this option. Still, some refinancing institutions may be able to offer rates either directly or through various programs that can be attractive for certain student borrowers, depending on the financial terms of their current loans.

Additionally, some refinancing companies will allow borrowers to “lock in” a rate quote, much like a mortgage. That gives a borrower time to consider the option.

Be aware that refinancing could alter the repayment terms for individual loans, depending on the type of loan you have. And with interest rates on the rise, there may be other implications to the cost of your loan. Borrowers would be wise to consult a financial professional for guidance.

Understanding the terms of your student loans as well as the refinancing possibilities is critical. (Related: Understanding student loan refinancing)

Your employer?

Many companies offer student loan repayment assistance as part of a benefits package. In fact, such programs are becoming a popular recruiting and retention tool for some industries. And it can potentially save you serious money.

Ask your human resources department if your employer has such a program and, if so, what the terms are. Oftentimes, such programs are only available after a certain period of employment or may have been implemented after you signed on. If no program exists, you may want to ask your employer whether such a program could be considered or whether help might be provided on an individual basis.


The current economic crisis has led to potential problems for millions of student loan borrowers. Government relief has been helpful, but its continuation is not certain. Borrowers should therefore consult their lenders, consider refinancing, and review their employee benefits to forestall negative consequences as much as possible.

Discover more from MassMutual…

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This article was originally published in January 2021. It has been updated.


1 The nine states are California, Colorado, Connecticut, Illinois, Massachusetts, New Jersey, Vermont, Virginia, and Washington.

U.S. Department of Education, “Student Loan Delinquency and Default.”

Bankrate, “How long does it take to raise your credit score?” Dec. 13, 2019.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of Massachusetts Mutual Life Insurance Company.