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If you've been keeping up with the news surrounding student loans, you may know that the Biden administration's relief plan to forgive up to $39 million in federal student loans has met with significant resistance. As the legal battle wages on, millions of students across the U.S. are likely left wondering: okay, but politics aside, what happens with my loan now?
The Great Payment Pause: A Recap
As many of us remember, part of the federal government's emergency response to COVID-19 included a multi-year pause on student loan payments and a temporary 0% interest rate to help soften the blow of the pandemic-era unemployment crisis. In May of 2023, the national COVID-19 emergency officially ended, with Congress subsequently passing a law to prevent further extensions of the loan payment pause.
As of this writing, the Biden administration continues its search for alternative ways to implement some loan forgiveness for nearly 1 million borrowers, even as the Supreme Court blocked the plan's rollout in June. According to the Department of Education, however, borrowers should still expect interest accruals to resume in September, with the first round of payments due in October 2023.
In the Dark on Debt Repayment
As a result of the initial forbearance period and its multiple extensions, we now have a generation of debtors who may be entirely in the dark about what to expect next for their loan repayment plans.
"We're in a really unprecedented moment," said Cory Turner, senior editor and education correspondent for NPR. "Last time I looked at the numbers, there were something like 7 million borrowers who were young enough that they likely have never had to make a payment on their loans. That's a lot of borrowers who have no experience in the repayment of student loans."
1. Get to Know the Federal Student Aid Site
Accept no substitutes! StudentAid.gov is the official source for all things related to federal financial aid: using the FAFSA for financial assistance, finding loans and grants, and—you guessed it—learning how to repay your student loans. If you have federal student loans, but the details are shrouded in a 2020 haze, start by logging back into your Student Aid account ASAP.
2. Know Your Loan Servicer
Your loan servicer is who you need to pay, so make sure you know who they are and whatever online portal or account details you'll need to take care of that. If you don't know your loan servicer, StudentAid.gov's Who's My Student Loan Servicer? resource is an excellent place to start.
3. Watch for Scams
Unfortunately, countless fraudsters are taking the opportunity to charge you for assistance—lower monthly payments, loan consolidation, and so on—that you can get for free by contacting your loan servicer directly. Fake loan servicers (with legit-sounding company names) may also try to intercept your personal identification, passwords, or financial information, which is just another reason why it's so critical to know who your servicer is and to make sure the communications you're receiving from them are authentic.
For more information on protecting yourself or your loved ones through the financial aid process, visit the Federal Student Aid resource library.
4. Review Your Repayment Profile
Once you've gotten back into your Student Aid and loan servicer accounts, ensure your contact information and personal details are current. Now it's time to review: where are you now versus where you were three years ago, before the payment pause? Is your employment more or less stable than it was then? How have your income, expenses, or household size changed? If the last few years have significantly changed your lifestyle or repayment capabilities, now is the time to take action.
Contact your servicer and ask them about your loan balance, what your monthly bill might look like, and what options may be available. Then take the time to think about your repayment options and what you can afford. And as with any loan, remember the difference between a "minimum" payment and a payment amount that will actually reduce a loan balance; do your best to strike a balance between affordability for your budget and an overall strategy for debt reduction.
5. Take Charge and Know What You Owe
Thanks to things like negative amortization, ignoring your student loans will only make the situation worse. This is one of those situations where it's better to rip off the Band-Aid now, dive into your account, and learn everything you can about making a real dent in your loan balance. For more information on how student loans work and how you can optimize your repayment strategy, check out these tips from the Consumer Financial Protection Bureau.
What If You Can't Pay?
What if you've crunched the numbers, run multiple scenarios, and still come to the gut-wrenching conclusion that you don't have the money to start paying on your loans this fall? First, some helpful news: the Department of Education has implemented a 12-month "on-ramp" to loan repayment, meaning that "financially vulnerable borrowers who miss monthly payments during [the period of October 1, 2023, to September 30, 2024] this period are not considered delinquent, reported to credit bureaus, placed in default, or referred to debt collection agencies."
Income-Driven Repayment (IDR) Plans
Aside from this one-year respite from falling into loan default, borrowers can explore Income-Driven Repayment (IDR) Plans. The application is available through StudentAid.gov and only takes ten minutes to complete. IDRs can make payment plans more affordable by adjusting monthly payments to the borrower's updated income and family size. Loan balances subject to IDR plans may also be eligible for forgiveness after 20 to 25 years.
Other Paths to Loan Forgiveness
While the Biden administration's recently blocked proposal was one of the more highly publicized routes to loan forgiveness in recent years, there are other options. For instance, the Public Service Loan Forgiveness (PSLF) program allows governmental and nonprofit employees to seek loan forgiveness after working full-time in public service and meeting a designated repayment threshold.
Other forgiveness or loan cancellation programs exist for teachers, medical professionals, people with disabilities, and borrowers whose schools closed or engaged in misconduct. For more information, check out this article on federal forgiveness and loan cancellation options.
The Bottom Line on Student Loan Repayment
True, the not-so-great news is that millions of us will likely return to paying on our student loans again this fall; many will also be navigating the repayment system for the first time. The main takeaway here is to take a deep breath, start now, and take it one step at a time using our handy checklist. The unknowns are the worst part, so once you know the resources and options that are available to you, you can get started on a workable plan to help you move forward. You're not alone.
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