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While summer heralds music festivals and vacations for many, this year will also mean the return of federal student loan repayments.
Interest is not accumulating and borrowers have not been required to make payments on their federal student loans since March 2020. But as the federal government ends its pandemic assistance, student borrowers are bracing to resume payments or start making them for the first time.
For some, there’s a lot of uncertainty surrounding the process, from when your payment is actually due to how much you’ll have to pay. The good news: you can take steps now to best prepare for the end of the break. Here’s where to start.
When do payments resume?
Federal student loan payments are currently set to resume 30 days after June 30, unless the Supreme Court rules on President Joe Biden’s student debt cancellation plan before then, in which case payments will resume 30 days. . after the pronouncement of the decision.
While this gives borrowers an approximate window on when payments are due, your budget should be ready to start making those payments as early as late July.
“Don’t wait for this case to be resolved,” Barry Coleman, vice president of counseling and education programs at the National Foundation for Credit Counseling, told CNBC Make It. “Don’t wait to find out just before payments are due again, start planning now.”
The Department of Education (ED) has instructed loan servicers to prepare to resume interest on loans in September and expects payments to fall due in October, according to documents obtained by Politico. The actual due date of your payment will depend on your loan servicer.
I have never made a repayment on my student loans before. What can I expect?
If you graduated or left school between March 2020 and today, you may never have been required to make a payment on your federal student loans. But once you get started, you’ll want to stay on top of your payments.
Start by determining who your loan manager is; they probably contacted you when your loans were initially dispersed. If you are unsure, you can log in to your Federal Student Aid (FSA) 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 repairer is, log in to your account and check the status of your refund. All federal borrowers are automatically enrolled in the standard repayment plan First of all. Under a standard repayment, you pay a fixed monthly payment of at least $50 for up to 10 years, making it the fastest repayment plan available for federal loans.
Your repairer’s website should give you all the information you need to make that first payment, including the amount and the due date.
Which payment plan is right for me?
Depending on your particular situation, you might need or want to sign up for a different repayment plan. Borrowers considering pursuing Public Service Loan Forgiveness (PSLF) are required to enroll in an income-based repayment (IDR) plan in order to qualify for on-the-road loan forgiveness.
If you can’t afford your monthly payment under the Standard Repayment Plan, you may want to consider signing up for an IDR like the Revised Pay As You Earn (RPAYE) 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 plans to enact changes to these plans that make payments even more affordable. It’s unclear when the changes will go into effect, but the administration said it hopes to start implementing some by the end of this year.
The ASF has a loan simulation tool that can help you determine which payment plan is best suited to your priorities — whether it’s paying off your loans as quickly as possible or keeping your monthly payments low and fixed.
What if I can’t afford to pay my monthly installment?
By taking into account each borrower’s income, IDR plans aim to ensure that borrowers can either continue to make small, affordable payments or reduce their liability to $0. No matter where you are on the income scale, it’s a good idea to see if an IDR plan would lower your monthly payment.
Borrowers who qualify for $0 monthly payments through REPAYE or one of the other IDR plans can still progress, even if their balances don’t decrease. These $0 payments still go toward the 120 payments required to receive loan forgiveness through PSLF as long as you work for an eligible employer.
And for all borrowers using an IDR plan, any remaining balance is canceled after 20 or 25 years of payments.
The good news is that you can change your repayment plan at any time. If you are not looking for PSLF, you are free to choose from the different repayment plans and see how it goes. If that doesn’t work for you, try another one.
You can request a loan deferral for a variety of specific situations, including undergoing cancer treatments, receiving government benefits such as food stamps, being on active military duty, or receiving unemployment benefits.
How long you can defer payments depends on the type of deferral you’re entitled to, usually 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 available deferrals, you can ask for a general abstention. Your loan servicer still needs to approve, but if you can demonstrate financial hardship due to job change, medical bills, or another reason, you may qualify for a forbearance of up to 12 months at a time.
Interest accrues on all forbearance loans. You have the option of paying the interest as you go or adding it to your main balance when your forbearance ends.
How might student loan forgiveness impact repayment?
About 20 million borrowers will be out of 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.
“Think about the worst, hope for the best — plan like you have to make those 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 the discount is allowed.
Uncertainty makes it difficult 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 that your monthly payment will be as high as it is without the loan forgiveness.
For now, take a look at your finances and if you have any questions about your loans, talk to your managing agent right away, says Coleman. The Biden administration has notified of major delays and customer service issues when payments resume, so it’s a good idea to go ahead and contact your service agent now.
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