While the summer signals music festivals and vacations for many, this year it will also mean the return of federal student loan payments.
Interest hasn’t been accruing and borrowers haven’t been required to make payments on their federal student loans since March 2020. But as the federal government winds down its pandemic relief, student loan borrowers are bracing to resume payments, or start making them for the first time.
For some, there’s a lot of uncertainty around the process, from your actual payment due date to the amount you’ll be expected to pay. The good news: You can take steps now to best prepare for the end of the pause. Here’s where to start.
When do payments restart?
Federal student loan payments are currently scheduled to turn back on 30 days after June 30, unless the Supreme Court rules on President Joe Biden’s student debt forgiveness plan before then, in which case payments will resume 30 days after the ruling comes out.
While that gives borrowers a rough window of when payments will be due, your budget should be prepared to start making those payments as early as the end of July.
“Don’t wait until this case is resolved,” Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling, tells CNBC Make It. “Don’t wait until you know just before payments are due again, start planning right now.”
The Department of Education (ED) has instructed loan servicers to prepare to resume charging interest on loans in September and expects payments to come due in October, according to documents obtained by Politico. Your actual payment due date will depend on your loan servicer.
I’ve never made a payment on my student loans before. What can I expect?
If you graduated or left school between March 2020 and now, you may have never been required to make a payment on your federal student loans. But once you start, you’ll want to stay on top of your payments.
Start by figuring out who your loan servicer is; they probably contacted you when your loans were originally dispersed. If you’re not sure, you can log into your Federal Student Aid (FSA) account and scroll down to the “My Loan Servicers” section, or call the Federal Student Aid Information Center (FSAIC) at 1-800-433-3243.
Once you know who your servicer is, log into your account and see your repayment status. All federal borrowers are automatically enrolled in the standard repayment plan at first. Under standard repayment, you pay a fixed monthly payment of at least $50 for up to 10 years, making it the quickest repayment plan available for federal loans.
Your servicer’s website should give you all the information you need to make that first payment, including the amount and due date.
Which payment plan is right for me?
Depending on your specific situation, you might need or want to enroll in a different repayment plan. Borrowers who are planning to pursue Public Service Loan Forgiveness (PSLF) are required to enroll in an income-driven repayment (IDR) plan in order to qualify for loan forgiveness down the road.
If you can’t afford your monthly payment under the standard repayment plan, you might want to consider enrolling in an IDR like the revised pay as you earn (REPAYE) plan, which caps monthly payments at 10% of your discretionary income. Borrowers earning less than 150% of the federal poverty level may qualify for $0 monthly payments.
The Biden Administration is planning to enact changes to these plans that make payments even more affordable. It’s not clear when the changes will go into effect, but the administration has said it’s hoping to start implementing some by the end of this year.
FSA has a loan simulator tool that can help you determine which payment plan is best suited for your priorities — whether that’s paying off your loans as fast as possible or keeping your monthly payments low and fixed.
What if I can’t afford my monthly payment?
Taking each borrower’s income into account, IDR plans aim to make sure borrowers can either continue making small, affordable payments or reduce their responsibility to $0. No matter where you fall on the income scale, it’s a good idea to see if an IDR plan would reduce your monthly payment.
Borrowers who qualify for $0 monthly payments through REPAYE or one of the other IDR plans can still make progress, even if their balances aren’t shrinking. Those $0 payments still go toward the 120 payments required to receive loan forgiveness through PSLF as long as you work for a qualifying employer.
And for all borrowers using an IDR plan, any remaining balance is forgiven after 20 or 25 years of payments.
The good news is you can change your repayment plan at any time. If you’re not seeking PSLF, you’re free to choose from the various repayment plans and see how it goes. If it’s not working for you, try a different one.
The alternatives — deferment or forbearance — are best reserved for major life events because you may be limited in the length of time you can pause your payments and interest can accrue even while you’re not making payments.
You can request a loan deferment for a variety of specific situations, including undergoing cancer treatments, receiving government benefits like food stamps, being on active duty military service or receiving unemployment benefits.
The amount of time you’re able to defer payments depends on the type of deferment you qualify for, generally between one and three years. Interest accrues on unsubsidized loans during a deferment period.
If you’re having trouble making your monthly payment but don’t qualify for any of the deferments available, you may request a general forbearance. Your loan servicer still needs to approve, but if you can demonstrate financial hardship from a job change, medical expense or other reason, you may receive a forbearance for up to 12 months at a time.
Interest accrues on all loans in forbearance. You have the option of paying the interest as you go or having it added to your principal balance at the end of your forbearance.
How could student loan forgiveness impact repayment?
Around 20 million borrowers will no longer have federal student debt if the Supreme Court allows Biden’s loan forgiveness plan to proceed, according to the administration. But for now, those borrowers should still plan to start making payments when they resume.
“Consider the worst, hope for the best — plan as if you’re going to have to make these payments again,” Coleman says.
Similarly, borrowers who receive either $10,000 or the maximum $20,000 in loan forgiveness but still have outstanding debt would see their monthly payments reduced because ED plans to recalculate your monthly payment based on your new balance if forgiveness is allowed.
The uncertainty makes it tough for those who want to be able to plan with exact numbers. But in order to avoid missing a payment or under-budgeting, it’s a good idea to assume your monthly payment will be as high as it is without loan forgiveness.
For now, take a look at your finances and if you have questions about your loans, talk to your servicer right away, Coleman says. The Biden administration has warned of major delays and customer service issues when payments resume, so it doesn’t hurt to get ahead by reaching out to your servicer now.
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