Stressed About Restarting Student Loan Payments? 5 Moves to Make

For more than two years, most federal student loan borrowers have experienced a hiatus from student loan payments, a pause in debt-collection activities and interest rates set at 0%. Last month, the Biden administration extended these benefits to Aug. 31, 2022. In addition, borrowers who were previously in default will be given a fresh start, with their loans returned to good standing.

Borrowers should plan to restart student loan payments in September—but you can start preparing now. Review your student loans this month and decide what to do if you don’t think you can afford them in September. Here’s what to consider.

Can’t Afford Federal Student Loan Payments? What to Do Now

First, some good news: Since your loans are held by the federal government, you have access to many payment-adjustment programs that can lower your monthly bill. That means you’re not stuck with the payment amount you made before the pause started.

A lot can happen in two and a half years: Perhaps your rent has gone up, you’ve had a baby, you’re caring for a sick relative or you’ve lost your job. One of the below options can likely help your student loan payments be less of a burden.

1. Consider Income-Driven Repayment

Start by reviewing available income-driven repayment (IDR) plans. This is generally the best way to lower your student loan payment long-term since it also results in forgiveness of any remaining balance after 20 or 25 years. Your monthly payment will be determined by your discretionary income and family size. IDR plans come in four main varieties:

  • Income-based repayment: Pay 10% or 15% of discretionary income for 20 or 25 years, depending on when you first borrowed.
  • Income-contingent repayment: Pay 20% of discretionary income or what you’d pay on a 12-year repayment plan (whichever is less), for 25 years.
  • Pay As You Earn: Pay 10% of discretionary income, limited to what you’d pay on the 10-year standard plan, for 20 years.
  • Revised Pay As You Earn: Pay 10% of discretionary income for 20 years (if you’re repaying only undergraduate loans) or 25 years (if you’re repaying any graduate-school loans).

There are several differences among the plans, including which types of student loans are eligible for each. You can view what plans you might qualify for with Federal Student Aid’s Loan Simulator tool.

Alternatively, ask your student loan servicer for advice on which makes the most sense for your situation. Or you can tick the box on the IDR application requesting that Federal Student Aid place you on the plan with the lowest monthly payment.

If you were already on an IDR plan when the pause started, your payment will be the same once payments resume. However, you can opt to recertify your income before the pause ends if your earnings have gone down. That could give you a lower payment starting in September.

You can even self-report your income without submitting a tax return (if you have all direct loans). The self-reporting feature is a pandemic-relief measure that will end on Feb. 28, 2023.

2. Adjust Your Repayment Timeline

Another option—which won’t result in forgiveness—is to lengthen your repayment term in order to get a lower monthly payment. You can consolidate federal loans, for example, into one simplified monthly payment. This will extend your repayment term to up to 30 years, depending on your balance. However, extending the repayment period is a trade-off—you can lower your monthly payments but you’ll pay more in interest over the life of your loan.

If consolidation isn’t right for you, you might switch to the extended repayment plan if you have more than $30,000 in eligible federal loans. You’ll have the choice of fixed or graduated payments, which will increase over time—presumably, as your income increases. Extended repayment offers a 25-year term.

A drawback of extended repayment is that it’s not a qualifying plan if you’re working towards Public Service Loan Forgiveness (PSLF). This program allows for tax-free forgiveness after 120 payments if you work full-time for an eligible public service employer. Carefully review the pros and cons of any new repayment plan before making a switch.

3. Choose Additional Forbearance or Deferment

Let’s say you’re concerned about affording payments in September 2022, but you imagine you’ll be able to get back on track in three or six months. In this case, forbearance or deferment—two ways to take a temporary break from payments—are additional options. The main difference between the two is that during deferment, interest won’t accrue on subsidized federal loans.

There are several forbearance and deferment programs, including for unemployed borrowers; those with financial hardships; those participating in a graduate fellowship, medical residency or AmeriCorps; and more. Your loan servicer can help determine which program you qualify for.

But keep in mind that since, in most circumstances, interest will accrue during this break in payments, you’ll likely owe more at the end of the deferment or forbearance period. That’s why IDR plans are generally the best option if affordability is a concern: Your payment will be permanently reduced, and you’ll get forgiveness on your balance at the end of the repayment term.

4. Look into Forgiveness or Discharge

You may qualify for a loan forgiveness or discharge program that will eliminate your remaining balance after a period of time.

Aside from getting forgiveness via an IDR plan, you could qualify for loan forgiveness based on your job, particularly if you work in a public service or helping profession. Options include PSLF, state and federal programs for healthcare workers, school- or state-based loan forgiveness and repayment assistance programs and employer-based loan repayment assistance programs.

Federal loan discharge is available if your school closed while you were studying or soon after you graduated, if you were the victim of fraud at your college, have a total and permanent disability or, in some cases, file for bankruptcy. You will likely have to apply for discharge and show proof of your eligibility. If you qualify, the associated federal loans will be canceled.

Contact Your Loan Servicer Before Payments Resume

There’s one important step to take, no matter how you decide to manage payments when the federal student loan pause ends.

In order to avoid inadvertently missing your first payment when they resume, make sure your student loan servicer has your updated contact information. There’s a chance you have a new servicer, since some ended their contracts with the U.S. Department of Education while payments have been frozen. So it’s extra important to check in and confirm you know which company to expect updates from.

Find your student loan servicer by logging in to Federal Student Aid with your Federal Student Aid ID (FSA ID). You’ll find the servicer’s contact information there, too. If you haven’t already, create an account on your servicer’s online portal, check that all the information there is accurate and sign up for autopay, if applicable.

Even if you made payments automatically before the payment pause started, you’ll likely have to opt in for autopay again before it ends, according to the Department of Education.

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