Student loan payment break may end soon – how to prepare now


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?

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?

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.

Variants — deferment or forbearance – are best reserved for major life events, as you may be limited in how long you can suspend your payments and interest may accrue even when you do not make payments.

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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