Navigating Federal Student Loan Repayments: What You Need to Know

The Department of Education’s student loan forbearance program is coming to an end. With interest resuming on September 1 and payments due in October 2023, it’s essential for borrowers to understand the changes and new options available to them. In this blog post, we’ll explore the key points you need to know as you prepare to resume federal student loan repayment.

The basics: federal student loan repayments resume

First and foremost, it’s important to note that these changes only apply to federal student loans. Interest will resume on September 1, and payments will be due sometime in October 2023, with the exact date dependent on the borrower. You should receive a statement at least 21 days before your due date.

While broad debt relief was blocked by the Supreme Court in June 2023, there has been forgiveness within smaller groups. For example, over 800,000 borrowers recently received discharges due to changes in income-based repayment plans under the Public Service Loan Forgiveness (PSLF) program.

Introducing the save plan

The SAVE Plan is a new income-driven repayment plan that could potentially lower your monthly payment and counts towards PSLF payments. This plan increases the income exemption, meaning less of your income goes towards calculating your loan payment. If you make your monthly payment and it doesn’t cover the total interest accruing, your loan balance won’t grow due to unpaid interest.

If you make $32,800 a year or less (roughly $15 an hour), your monthly payment will be $0. Starting next summer, monthly payments under the SAVE plan will be cut even more, reducing your monthly payment from 10% of disposable income down to 5%. If you apply now, your application will be processed before the first payment date in October.

The SAVE plan is great if you’re looking for a low monthly payment, but not if your goal is to pay off your loan quickly or pay the least amount of interest in the long term. Use the Dept. Of Education loan simulator to see how this payment plan would change your monthly payment and explore what payment plans might best fit your financial situation and goals.

The on-ramp program

Until September 2024, the Department of Education won’t place student loan payments into default or delinquency for missed, partial, or late payments and will not report missed or late payments to credit bureaus. Interest will still accrue, and you’ll eventually owe these payments, but this can help you in the short term if you’re struggling to work a student loan payment back into your finances.

Fresh start program

If you were in default before the payment pause, you can apply for the Fresh Start program with your loan servicer. This program will bring your loans out of default status and remove the record of default from your credit report. The application process typically takes around 10 minutes. For more information on the Fresh Start program, you can contact your loan servicer or visit the Federal Student Aid website.

Communicate with your servicer

If you’re having any concerns about starting repayment, it’s crucial to communicate with your servicer to see what options are available to you. Your servicer can help you understand your repayment options, assist with loan consolidation, and provide information on deferment or forbearance if you’re facing financial hardship. They can also help you switch to a different repayment plan that better suits your needs.

Before october: prepare for repayment

Before October, take the following steps to prepare for repayment:

1. Log in and confirm your servicer.
2. Update your contact information.
3. Confirm your payment plan.
4. Review or set up autopay.

Autopay gets you a 0.25% interest discount on student loans. Plan how your monthly payment will fit into your budget and research alternatives if you’re struggling.

Financial counseling

Financial counseling can help you make a plan for repayment and explore options as payments resume. Topics covered in financial counseling may include:

Budgeting: Learn how to create a budget that accounts for your student loan payments and other financial obligations.

Repayment options: Understand the various repayment plans available and how they can impact your monthly payments and overall loan balance.

Navigating uncertainty: Develop strategies for managing financial stress and uncertainty as you work towards repaying your student loans.

In conclusion, the resumption of federal student loan repayments is a significant change for many borrowers. By understanding the available options and taking proactive steps to prepare, you can successfully navigate this transition and work towards a brighter financial future.