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As the American public awaits the Supreme Court’s ruling on Biden’s student loan forgiveness plan, anxieties surrounding the end of the three-year federal student loan payment pause are mounting. Interest will resume starting on Sept. 1, and payments will be due starting in October. The Department of Education says it will notify borrowers of the details on their loans well before repayment starts.
Many people with Federal student debt were already making payments before the payment pause began in 2020. But those who have graduated in the last three years will be making payments for the first time this summer. A segment of these borrowers have applied for Biden’s one-time student debt relief program and would have some or all of their debt canceled if the plan is ultimately approved.
The Department of Education has previously predicted historically high default and delinquency rates if borrowers are pushed into repayment without debt relief. This could be an especially prevalent problem for newer borrowers not used to budgeting for student loan payments.
If you are one of the millions of Americans who will be impacted by the Supreme Court’s ruling and you are worried about the restart of payments, it is a good idea to start preparing now.
How to prepare for the end of the payment pause
Even if you have made student loan payments in the past, it is important to prepare for the start of repayments and adjust your budget to account for the new expense, especially if the one-time student debt relief program is ultimately struck down.
Here are some steps to prepare for repayment and make the transition as stress-free as possible.
Reach out to your student loan servicer
The most important step you can take is to reach out to your student loan servicer early. Update your contact information if needed, and check how much you owe and what payment plan you currently have.
You should also check that your student loan servicer has not changed, as some servicers have ended their contracts with the Department of Education during the payment pause. You can find your student loan servicer by logging into your Federal Student aid account. If your servicer has changed, set up an account with the new one so that you can directly track and manage your debt.
If you have any questions about your student debt or want to change your payment plan, contact your student loan servicer as soon as possible. Once payments restart, student loan servicers will likely be overwhelmed with calls and inquiries, making it difficult to get the information you need before you have to start repaying your loans.
Make room in your budget
Since Federal student loan borrowers have not had to make payments for the past three years, most have not had to account for their student loan payments when calculating their budgets. If you have federal student loans, make sure you know exactly how much you will owe each month and try to start saving up money for those payments.
It could be worth getting a budgeting or financial planning app to help you sort your finances out, even if you already have a basic budget. And if you have disposable income, considering putting extra money toward your monthly payments to help you pay off your loan sooner and save money on interest. You may be able to boost your disposable income by asking for a raise or adding an extra income stream.
Adjust your repayment plan and timeline
If you are worried that you will not be able to make your monthly payments once they restart, look into changing your payment plan and timeline.
- Income-driven repayment plans are a great way to ease the burden of student loan debt, especially if you are struggling financially.
- An extended repayment plan may be another option, but you must have at least $30,000 in eligible federal debt to qualify. You can extend your repayment up to 25 years, with a choice of fixed or graduated payments that increase over time.
Ask your loan servicer about additional forbearance or deferment
There are also forbearance and deferment programs available if you are currently unemployed or experiencing financial hardship. You have to apply for these programs and it is ultimately up to your loan servicer to approve or deny your request.
If you qualify for temporary forbearance, you can either continue paying accruing interest during the forbearance or not. You will have to pay the interest eventually. If you choose not to pay it during forbearance, your total debt could increase.
In addition to forbearance programs for unemployment and financial hardship, Federal Student Aid offers forbearance programs for members of the military, medical students in residency and those pursuing graduate fellowships. Contact your student loan servicer as soon as possible to apply.
How to make student loan payments for the first time
If you are going to be making student loan payments for the first time when the payment pause ends, sort out the details now to ensure you are on the best payment plan for your situation and that you do not miss your first payment. Here are some steps that first-time borrowers should take to prepare for repayment.
Find your student loan servicer
The first thing you should do is log on to studentaid.gov and find your loan servicer. If you do not know how to log in to your Federal Student Aid account, or if you don’t remember your account information, you can call the Federal Student Aid Information Center at 800-433-3243 for assistance.
Once you know which company is servicing your student loans, make an account with them to track your payments. Your student loan servicer will contact you via email or letter to remind you of your first student loan payment, but it is best to reach out in advance if you are worried about repayment or have not set up a payment plan yet.
Find out your interest rate and loan term
Once you have access to your student loan servicer and have set up an account, you can see your fixed interest rate and loan term. Federal student loans have fixed interest rates depending on the year you graduate and the types of loans you have.
The standard repayment timeline for federal student loans is 10 years, but payment plans are available for up to 25 years. Knowing your interest rate and the loan term you are currently signed up for will help you determine how much you will owe each month and whether or not you need to change your repayment plan or timeline.
Compare payment plans
If you have federal student loans, the Department of Education has several repayment plans you can sign up for:
- Standard repayment. Under this plan, you make fixed monthly payments over a set timeline of 10 years or up to 30 years if you have consolidation loans.
- Graduated repayment. Payments start lower and increase over time with this plan, typically every two years. These plans are also set up to ensure that you pay off your debt within 10 years or up to 30 years for consolidated loans.
- Income-driven repayment plans. The Department of Education offers five income-driven repayment plans. These include Revised Pay As You Earn Repayment (REPAYE), Pay As You Earn Repayment (PAYE), the Income Based Repayment plan (IBR), the Income Contingent Repayment plan (ICR) and the Income-Sensitive Repayment plan. Each plan has different qualifications, but they are generally based on your income and the amount of debt that you have.
Sign up for autopay
Late and missed student loan payments can have extreme financial consequences.
- If you do fail to make a scheduled payment within 90 days, your debt becomes delinquent and your credit will suffer.
- If you do not make payments within 270 days, your loan will go into default and will be sent to a collections agency.
Eventually, the Federal government could get involved and you could face wage garnishment and withheld tax refunds.
The best way to avoid missing payments is to set up autopay for your loan payments. That way, you never have to worry about remembering to make payments. However, it is important to ensure you can consistently afford your monthly payments and are making room for them in your budget before setting up autopay to avoid a surprise financial hit or overdrawing your bank account.
Alternative paths to debt relief if Biden’s student debt program is struck down
As the battle over one-time federal student debt forgiveness continues, the Biden administration and the Education Department have been trying to provide borrowers alternate paths to debt relief. Here are some of the biggest steps they have taken to ease the national student debt burden and how these programs could benefit you.
Closed school discharge and borrower defense to repayment
The Department of Education has been canceling Federal student debt for borrowers that attended for-profit universities for the past several years under the closed school discharge program and the borrower defense to repayment fund.
These programs have resulted in billions of dollars of student debt being canceled for those defrauded or misled by their college. The Department of Education recently announced further steps it plans to take to hold for-profit college leaders responsible for federal student debt, aiming to discourage unlawful behavior from these institutions that impacts students.
If you currently attend or have attended a for-profit college that you believe defrauded or misled you, you might be eligible for a partial or full discharge of your federal student loans under these programs.
One-time income-driven repayment waiver
Nearly a year ago, the Department of Education unveiled a one-time income-driven repayment waiver aimed at helping borrowers achieve debt relief through an IDR or Public Service Loan Forgiveness program.
Essentially, this adjustment will revise borrower accounts so that more of their previously made payments count toward the required number to qualify for loan forgiveness under the PSLF or IDR programs. The Department of Education has predicted that this measure will result in millions of borrowers receiving credit toward forgiveness.
These changes were initially supposed to go into effect at the end of 2022, but it is now projected that qualified borrowers will begin seeing their debt discharged starting in the spring of 2023. The Department of Education will continue these account updates into 2024.
To be eligible for this waiver, borrowers must be enrolled in an IDR or PSLF plan. Borrowers with commercially-held federal loans, such as FFELP and Perkins loans, must consolidate their loans by May 1, 2023, to be eligible. If you are enrolled in one of these programs, the adjustments will be applied to your account automatically.
The Biden administration and the Department of Education recently announced updates to the Revised Pay As You Earn Plan. These changes would offer $0 monthly payments to borrowers making less than $30,600 a year and would significantly cut down monthly payments for other borrowers.
The new regulations would also stop the accumulation of unpaid interest that drives up total loan costs. The Department of Education aims to finalize these changes and begin putting them into effect by the end of 2023.
Any borrower with Direct Federal student loans can sign up for the REPAYE plan.
The bottom line
There is a lot of uncertainty surrounding national student debt relief efforts, and the stakes for borrowers are very high. However, student loan payments are restarting soon whether debt relief measures are passed or not, and borrowers need to prepare for all possible outcomes.
The most important step for new and old borrowers alike is to get in touch with your loan servicer early and make sure you are happy with your repayment plan. Switching to an income-driven repayment plan, particularly the REPAYE plan, could help ensure you’re able to stay on top of your payments. Switching to an IDR could also help you access debt relief even if the Supreme Court rules against Biden’s program.