As of October 1, 2023, the “pause” on federal student loan payments will end. The pause was enacted during COVID-19 in 2020 and has been in place for nearly 3 ½ years. During this time, federal student loans stopped any automatic payments and did not collect interest. Borrowers were permitted to continue paying down the principal of their loan during this period, but payments were optional.
Now that payments have resumed, many borrowers feel jarred and unsure about;
- how to restart their payments,
- whether they’re on the right payment plan,
- what this change means for their day-to-day financial life.
Today, we’re going over the key points you need to know before restarting your payments and how to reincorporate your loans into your financial plan. Ready? Let’s go.
New Programs To Look At
Although it may be tempting to restart your payments on autopilot by re-enrolling in the same repayment plan you were previously part of, there are several new options for you to consider from the Biden-Harris Administration.
On-Ramp to Repayment
The On-Ramp to Repayment program has been launched to make reintroducing student loan repayments easier for borrowers. In short, this program is intended to ease borrowers into the transition from “paused” repayments to incorporating the bill into their monthly finances again. Benefits of this program include:
- If your federal student loan payments were paused for the past few years, you can apply for a 12-month grace period for payment defaults.
- Interest will accrue during this time, even if you default on your payments.
- Your time within this program will not count toward PSLF or other debt forgiveness plans.
This new repayment plan is designed to be similar to the Income-Driven Repayment Plan(s) of the past but is even more affordable for borrowers. Here are a few details about this new repayment program:
- SAVE increases the amount of protected income from 150% of federal poverty guidelines to 225%, making it one of the most affordable loan repayment plans ever. In other words, a single filer making less than $32,800 per year would have a $0 monthly payment.
- If your original loan balance is $12,000 or less and you qualify for loan forgiveness, you can have your debt forgiven after 10 years of payment (instead of 20 as it was previously).
- It bases your monthly payment on your income and family size
- SAVE aims to lower your monthly payments by calculating what you owe using a smaller portion of your Adjusted Gross Income (AGI)
- If you make your total monthly payment, but the payment doesn’t cover the accrued interest on your loan, the federal government covers the accrued interest for that month.
- SAVE excludes your spouse’s income if you file your taxes separately, helping you reduce your calculated AGI (and your monthly payment).
One potential downside to the SAVE plan is that there is no payment cap on the SAVE plan, unlike past repayment plans (like the REPAYE plan, which caps your monthly payment at whatever your payment on the standard plan would be). Another item to note is that all payments made on any repayment plan (including standard repayment) count toward loan forgiveness if you are eligible.
If you were on the REPAYE plan, you’ll automatically be converted to the SAVE plan when your payments start back up. However, if you’d like to apply, head to the StudentAid.Gov site here.
Unsure Which Plan is Right For You?
You’re not alone! Choosing a repayment plan and determining if you’re eligible for loan forgiveness can be overwhelming at best. Luckily, there is a handy calculator created by our friends at Student Loan Planner to help you decide which repayment plan is best for you and your family. Click here to enter your information and build a student loan strategy before your payments start back up.
What About Loan Forgiveness?
The initial repayment plan that the Biden-Harris administration had proposed was struck down by the Supreme Court. However, several changes to the existing PSLF program, or IDR repayment program(s), have opened up forgiveness options to thousands of borrowers. Here’s what you need to know:
- You may be eligible for loan cancellation, discharge, or forgiveness if – you’re a teacher, you’re a government employee, you work for a nonprofit organization, you’re a medical professional, you have a disability, or you’re on an Income-Driven Repayment Plan (IDR).
- If you’re on an IDR plan (including the aforementioned SAVE plan) you may be eligible for loan forgiveness after 20-25 years of payments or a certain number of payments. Under the new SAVE plan, this number may be reduced to 10 years in certain circumstances.
Other Considerations: What’s Your Interest Rate?
With loan payments restarting, it may be helpful to consider how your student loans impact your financial plan. For example, if you have federal loans that you’ll have to start paying again, consider looking at your interest rate. Remember – you can refinance some or all of your student loans if you qualify for a better interest rate elsewhere. Your interest rate is not the only consideration. Your federal student loans come with a number of protections that a private student loan may not.
If you have questions about student loan repayments starting back up, we have several resources for you to check out:
Student Debt Crisis Center – A fantastic place for information about student loans, debt relief, and more.
StudentAid.Gov – Get the facts on repaying your federal student loans straight from the source. The more you can educate yourself on how your loans function and what repayment options are available, the more confident you will feel in your decisions!
We’re here to help! Reach out to us if you have any questions about your loans, repayment plans, loan forgiveness, or anything regarding payments restarting.