5 Things to Know as Student Loan Repayment Restarts
5 min read
Posted on September 18, 2023
[Note: the following post is based on the official Department of Education website repayment guidance]
Well, it’s finally time. After more than three years, the federal student loan payment pause is coming to an end. During this time, no payments were required, and no interest accrued, which meant that loan balances remained unchanged for millions of borrowers. Alas, interest started accruing again on September 1st, and payments are set to resume in October.
There’s a ton of information flying around about what to expect, and we’re here to help you make sense of it! First, you’re not alone in this. Millions of federal student loan borrowers like you are gearing up for the return of loan payments.
In this article, we’ll dive into 5 things you should know as repayment approaches, including details on the new “most affordable income-driven repayment plan ever”, known as SAVE.
1. Confirm Your First Repayment Due Date
If you didn’t know already, October is when payments start up again. Typically, you should receive a bill from your loan servicer roughly 21 days before your due date, although it varies by servicer. If you haven’t, contact them directly to find out. If you’re unsure who your loan servicer is, keep reading!
2. Understand Your Loan Details
Understanding your loan details is the first step in determining what to expect on your loan bill.
You should log in to your studentaid.gov account and make sure you’re clear on your loan details. This includes who your servicer is, payment information, interest rate, etc. Ensure that your contact information is accurate as well.
Check with your servicer if you're enrolled in autopay while reviewing these details. In fact, some loan servicers offer discounts to those who are. Automating your payments could make your life a little easier!
Lastly, your loan servicer may have changed during the repayment pause. Be aware that this means you may need to set up an account with your NEW servicer.
3. Explore Your Repayment Options
When it comes to repayment, knowing your options is essential. You may be able to save money in the long run if you qualify for an income-driven repayment plan (IDR). Next, let's discuss repayment plans in more detail.
Standard repayment vs. IDR plans
What’s the difference between standard and IDR repayment plans? We’d love to answer.
Standard repayment plans are based on your loan amount plus interest. In contrast, income-driven repayment plans (IDR) are based on how much money you make. After making payments for a set number of years, the remaining balance is forgiven.
If you were already on an IDR before the pause, check if you need to recertify with your loan servicer. Or, if you decide to apply for an IDR, do it as soon as possible, so it’s reflected on your loan bill.
Spotlight on the new SAVE plan
According to the Department of Education, the new IDR plan, Saving on a Valuable Education (SAVE), provides the lowest monthly payments of any IDR plan available to nearly all federal student borrowers. Note that SAVE replaces the Revised Pay As You Earn plan (REPAYE), so if you're already enrolled in REPAYE, you’re automatically enrolled in SAVE.
Not only does SAVE have a lot of new benefits, but more are expected to be added in summer 2024. Here are some current standout benefits available to eligible borrowers right now:
- Lowers monthly payment amounts (or brings them down to $0) by increasing minimum qualifying discretionary income requirements (see below for an example).
- Eliminates the requirement for married borrowers who file taxes separately to include their spouse’s income in their payment calculation.
- If you make your monthly payments, the unpaid interest isn’t added to your overall balance - which is a HUGE benefit.
By increasing the minimum discretionary income requirements threshold from 150% to 225% of the U.S. poverty line, eligible borrowers will experience significantly reduced monthly payments, possibly down to $0! For example, if you’re a single borrower earning $32,800 or less, or a family of four with an income of $67,500 or less (note that thresholds are higher in Alaska and Hawaii), your monthly loan payment will be $0.
The Biden Administration estimates that over 20 million borrowers could benefit from the SAVE plan! Be sure to explore if you qualify for SAVE, it could result in saving you money on your student loans.
Keep an eye on future updates to ensure you maximize the advantages of this new plan.
Resources to help guide your repayment strategy
The federal student loan repayment calculator is a great tool that can help estimate your potential monthly payments and what IDR plan might work for you! You can also contact your loan servicer for guidance on repayment options.
Remember, there are still forgiveness options you may qualify for, like if you’re a teacher or work in public service. You can find more information on those options, like Public Service Loan Forgiveness (PSLF) on the Department of Education’s website.
4. Avoid Missing Your Payments
When you miss a payment on a loan (a student loan or any other kind of loan), it’s considered delinquent. The potential consequences of missing a payment could include an impact on your credit score, among other things. So it’s crucial to avoid missing payments if you can.
However, you have options to potentially avoid the consequences of missing federal student loan payments. Currently, the government set up an “on-ramp” to repayment, which serves as an important protection. Let’s take a closer look at the “on-ramp” to repayment details.
“On-ramp” to repayment
The Biden Administration has instituted an “on-ramp” to repayment period from October 1, 2023, to September 30, 2024. During this 12-month timeframe, if you don’t make your monthly loan payments, it may help you avoid some major consequences. For example, you won’t fall into delinquency or default which likely means it won’t decrease your credit score - however, it isn’t crystal clear how the credit bureaus will treat the missed payments.
Keep in mind that you’ll still have to make missed payments after the on-ramp expires. So be sure you know the pros and cons of missing a payment during this period before you absolutely need to.
Additionally, the “on-ramp” period is only for federal student loans. Any late or missed payments on private student loans or other loans will come with the usual consequences.
There’s no action (i.e. no need to fill out an application) to take during this grace period if you need to miss a payment.
Know your options to avoid missed payments
As previously mentioned, use the federal government's loan repayment calculator to investigate repayment plans for which you may qualify. This step could potentially lead to a more affordable, lower monthly payment, reducing the risk of missing payments in your future.
There are also temporary relief options like forbearance or deferment, which assist qualified borrowers who find themselves in a short-term financial bind. There’s also the Fresh Start Initiative, which may help if your loan defaults in the future.
However, it's essential to exercise caution and thoroughly understand the pros and cons of utilizing temporary relief options, especially in light of the earlier mentioned "on-ramp" period.
5. Watch Out for Scam Artists
Lastly, be aware of scammers out there! The Federal Trade Commission (FTC) issued a Consumer Alert about spammers trying to take advantage of student loan borrowers.
Commonly, they ask for payment information to set up your loan payments. Or, they attempt to get payment for providing guidance about your student loans. Rest assured, you’ll never be charged to receive guidance from your loan servicer. And, the federal government will never charge you to set up payments. Watch out for those red flags!
Let’s recap, shall we? In this article, we covered: where to find your loan details (including your first repayment due date), how to explore repayment plans (like the new SAVE plan), and what to know in order to avoid missing a payment. Plus, what to look out for when it comes to potential spammers. (Rude).
Remember that private student loans don’t qualify for federal loan benefits (i.e. income-driven repayment plans). It may be worthwhile to explore refinancing, as it could potentially lower your monthly payments. Check your rate through Splash and see if you qualify (with no impact on your credit score)!1
The information provided in this blog post is not intended to provide legal, financial or tax advice. We recommend consulting with a financial adviser before making a major financial decision.