Q. I hear the “student loan holiday” is almost over. What should I do about it?

A. Since March 2020, federal student loan borrowers have enjoyed three benefits. First, their student loan interest rate was temporarily set to 0 percent. Second, required payments were reduced to zero. Third, these nonpayments actually count as payments for those pursuing student loan forgiveness through a federal income-driven repayment (IDR) plan and the Public Service Loan Forgiveness (PSLF) Program. Taken together, these three benefits really can be considered a student loan holiday.

At the start of the pandemic, when emergency department volumes dropped by 40 percent, physicians saw their hours and incomes reduced, and as the economy drove off a cliff, a student loan holiday seemed a reasonable policy. However, doctors are now generally back to work, physician incomes have mostly recovered, and the economy has mostly recovered for average Americans in the third quarter of 2020.

Congress and the Department of Education just announced a final extension of the student loan holiday. When announcing the extension, Education Secretary Miguel Cardona said, “As our nation’s economy continues to recover from a deep hole, this final extension will give students and borrowers the time they need to plan for restart and ensure a smooth pathway back to repayment.”

Barring some new announcement out of Washington, you can assume that your federal student loans will start accruing interest again on Jan. 31, 2022. Your next payment will be due on the day of the month your payments used to be due, not necessarily Jan. 31, so expect to have to make a payment some time during February. If your loans were set to autopayment, it is likely that they will still be automatically withdrawn from the same bank account. Make sure to update the bank account on file if it has changed over the last 18 months.

Watch Interest Rates and Investigate Loan Forgiveness

Inflation has begun to rear its ugly head in the last few months. While nobody is 100 percent sure if this is a temporary blip or the start of a long-term trend, remember that the main method the Federal Reserve uses to combat inflation is to raise interest rates. Thus, an interest rate increase has been forecasted to occur by 2023, if not during 2022 or even earlier. If you have not yet refinanced loans that need to be refinanced, you should do so.

Private student loans can always be safely refinanced any time you can get a lower interest rate. At The White Coat Investor website, you can find a list of lenders that will refinance your student loans and even give you cash back to do so. If you are still in your residency or fellowship, four lenders will still refinance your loans and offer you $100 per month payments until you finish training, which may be even lower than your payments would be on federal loans in an IDR program.

Exercise caution prior to refinancing federal loans. Once refinanced, those loans become private loans and are no longer eligible for the protections available in IDR programs, federal loan forgiveness programs such as PSLF, and any future potential tax holidays. It would be tragic for someone to refinance loans that could otherwise be forgiven after just a few more years making payments as a full-time employee of a nonprofit employer. However, refinancing often can lower your interest rate by 2 to 7 percent. Those savings can then be directed toward loan principal and get you out of debt even faster. Some companies are even offering up to six months of 0 percent interest and $0 payments.

To determine what to do with your federal loans, start by considering your employment situation and calculating your student loan debt–to-income ratio. If you owe $200,000 and earn $200,000 per year, your ratio is 1.

If you are not employed full-time by a nonprofit and have a debt-to-income ratio of less than 1.5, you can generally safely refinance your loans. I recommend “living like a resident” for two to five years and paying off the loans rapidly to free yourself from that burden. Then use the income that had been dedicated to those payments to improve your lifestyle or speed your way to financial independence through smart investments.

If you are not employed full-time by a nonprofit and have a debt-to-income ratio of greater than 2.5, you should give serious consideration to pursuing loan forgiveness via the IDR programs such as Pay As You Earn (PAYE). While student loan forgiveness via PAYE is fully taxable and requires 20 years of payments (unlike PSLF, which is tax-free and only requires 10 years of payments), it can still be a great deal for those with very large student loan burdens.

If you are not employed full-time by a nonprofit and have a debt-to-income ratio between 1.5 and 2.5, you would do well to hire an adviser who specializes in student loan advice to help you run the numbers and decide whether to refinance and pay off your loans or pursue IDR forgiveness. Again, further resources are available at The White Coat Investor website.

If you are employed full-time by a nonprofit after residency, PSLF is essentially always the best way to take care of your federal student loans, especially if you have been making IDR payments during residency and fellowship. Student loans are a massive part of the financial life of most residents, fellows, and young attendings. Do not feel guilty about paying for your education using borrowed money, but you do need to have a plan to take care of those loans after graduation. Even though the student loan holiday has been extended a few months, it is time to get that plan in place.