On September 1, interest on federal student loans resumed, and payments became due in October.
Borrowers of federal student loans haven’t had to make any payments in more than three years. However, the protracted payment moratorium is ending. On September 1, interest on student loans started to accrue once more, and in October, borrowers must resume making payments.
Although the federal forbearance has previously been extended numerous times, a clause in the debt limit agreement agreed by Congress on June 2 eliminates the possibility of another extension of the student loan moratorium, so you’ll need to get ready to start repaying your loans.
According to the New York Federal Reserve, about 44 million Americans had student debts totaling more than $1.6 trillion at the end of March. Resuming student debt payments after a three-and-a-half-year vacation from principal and interest payments will undoubtedly be difficult. Here is a timeline of the events that you should put on your calendar to help with the transition:
On June 30, 2023, the Supreme Court struck down President Joe Biden’s intention to erase student loans, ruling that his administration had the legal authority to do so under the HEROES Act. Payments must be made while he looks into alternative options for forgiveness, according to Biden.
The Biden administration planned a 12-month “on-ramp transition period” for borrowers after payments resumed after the Supreme Court’s decision. Borrowers will have time to adjust to the new payments during that time without running the danger of having their loans turned over to collections or going into default.
In a press conference, Biden advised, “If you can pay your monthly bills during this time, you should.” The on-ramp, however, “temporarily removes the threat of default or having your credit damaged, which can hurt borrowers for years to come, if you cannot, if you miss payments.”
Forbearance, often known as the interest-free payment suspension, started in March 2020 under President Trump as a pandemic emergency measure in response to the COVID-19 pandemic. Renewed student loan bills following three years and nine extensions may come as a shock to some of the almost 44 million borrowers with federal loans. Additionally, those who graduated from college in 2020 or later must prepare for their first-ever student loan installments.
When are federal student loans due?
Interest on federal student loans began to accrue on September 1. You must begin paying payments in October unless you just graduated and are still under your loan grace period. Your loan terms will determine your monthly payment amount and due date, but you can obtain that information on your monthly bill or by getting in touch with your loan servicer.
Note that the deadline is no longer contingent upon the Supreme Court’s decision regarding Vice President Biden’s plan to eliminate student loan debt. Before, the forbearance period was supposed to conclude 60 days after June 30 or 60 days following a ruling by the Supreme Court, whichever came first.
The most recent extension of the payment suspension was made on November 22, 2022.
What did the payment pause do?
Federal student loan borrowers were permitted to skip payments while forbearance was in effect. This was originally mandated by then-President Donald Trump in March 2020 as the COVID-19 pandemic spread. Autopay loans were canceled, and defaulted loan collection efforts were also put on hold. The Department of Education was the owner of federal loans at an interest rate of 0%.
Your previous loan sum will be reported when repayment starts in October, less any debt cancellation you might have been eligible for under still-in-effect loan forgiveness or cancellation policies. The good news for borrowers working toward loan forgiveness is that all of the payments you missed during the payment freeze count as qualifying installments.
Start planning for repayment now
The time for payback is rapidly approaching, so start planning how you’ll handle those payments. Here are some actions you may take right away to get ready for repayment:
- Locate your student loan servicer. The company that manages your student loans may have changed since forbearance began. Find your servicer by logging into StudentAid.gov.
- Contact your servicer. Log in to your servicer’s website or give them a call. Update your contact information. Ask how much you might owe when payments resume, how much your monthly bills could be, and what payment plans are available to you. Sign up for automatic payments; by doing so, you could qualify for a 0.25 percentage point interest rate discount
- Consider an income-driven repayment plan. Your servicer can help you sign up for an IDR plan, or you can apply online. These plans lower your monthly bills to a set portion of your discretionary income. Your payment could be as low as $0 per month, and it’s a good idea to apply early so that your payments reflect the lower amount when repayment begins.
The debut of a new IDR plan was announced by Biden on June 30. The revised pay-as-you-earn (REPAYE) plan is being replaced by the new SAVE plan, and qualified borrowers might save a lot of money by switching. You can apply for SAVE online and utilize the federal loan payment simulator to determine which plan would result in the lowest payment for you.
Enroll in the short-term Fresh Start program if your debts were in default before the forbearance started to get them back up to par.
No matter how you manage the remaining forbearance, start making plans for payback right away.