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After more than three years, the COVID-era federal student loan payment pause has officially come to an end. Interest began accumulating on September 1st, 2023, while payments resume starting in October.
The end of the payment pause comes months after the Supreme Court struck down the Biden Administration’s student loan forgiveness plan that would have wiped out up to $20,000 for some of the 43 million Americans who still owe what they borrowed to attend college.
With that in mind, here are a few things to know with repayments ramping back up this month.
During the payment pause, many federal student loan providers consolidated with other companies, so there is a good chance that your loan is now being managed by a different servicer than it was the last time you made a payment.
If you’re not sure who your servicer is right now, you can find out by logging in to the Federal Student Aid website. Experts say borrowers should then log in to their account with their servicer and confirm the accuracy of their contact information.
Before you start making payments, you need to have a plan in place. That starts with a budget.
Look at your monthly income and fixed expenses – things like rent or mortgage payments, car payments, insurance, gas, groceries, and monthly savings – to see how much discretionary income is left. That’s where the payment is going to have to come from.
To add student loan payments to your fixed expenses, you’re likely going to have to do one of two things; identify areas to cut back spending – things like coffee and dining out, subscriptions, and other entertainment – or look to add other sources of income.
It’s a good idea to reach out to your loan servicer once you identify them, to see what your monthly loan payments will look like.
The U.S. Department of Education understands that resuming payments isn’t going to be easy, so it is trying to help borrowers ease back into resuming loan payments.
One way is by putting a one-year "on-ramp" into place. From October 1, 2023, through September 30, 2024, missed, partial, or late payments will not lead to negative credit reporting, defaulting on your student loans, or loans being sent to collection agencies.
For those whose monthly federal student loan payments are more than they can afford, an income-driven repayment plan could be a solution. IDR plans are available to all federal student loan borrowers and are designed to give you a monthly payment you can afford.
You can use FSA’s loan simulator tool to see which payment plan works best for your situation.
It is important to note the downsides to an IDR plan. Lower payments can help in the short term, but lengthen the term of a loan, which can increase the interest amount and be more costly in the long run. Also, when the balance on income-driven repayment plans is forgiven after 20 or 25 years, that amount is considered taxable income.
One particular IDR plan that’s being promoted is the Department of Education’s SAVE program; Saving on A Valuable Education. It went into effect this summer and already has more than 4 million enrollees.
The SAVE plan cuts monthly payments to $0 for borrowers making $32,800 or less, or $67,500 for a family of four. Borrowers who earn more than those amounts may still see $1,000 per year in savings on their payments.
For undergraduate loans, the plan will raise the amount of income that is considered discretionary income and will cut monthly payments from 10% of discretionary income to 5%. For borrowers with original loan balances of $12,000 or less, the plan will forgive loan balances after 10 years of payments instead of 20 years.
The plan also has an interest subsidy that will stop the interest charges that can leave borrowers owing more than their initial loan.
To learn more about the SAVE plan, including if you are eligible, visit the Federal Student Aid website.
Despite the Supreme Court striking down President Biden’s student debt relief plan, the administration continues to enact what it bills as “targeted” student loan forgiveness through a variety of initiatives.
On July 14, the Education Department began notifying more than 804,000 borrowers who were on an IDR plan that at least some of their federal student loan debt would be reduced. Some borrowers may see their entire balance wiped out.
“The Biden-Harris Administration has already approved more than $117 billion in targeted relief for 3.4 million student loan borrowers,” said the Education Department in a statement. That includes:
$39 billion in loan forgiveness for borrowers under the IDR Account Adjustment.
More than $10 billion in loan discharges for disabled borrowers.
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