Getting everything in order now will help ease the transition
A nearly 3½-year federal student loan forbearance came to an end on August 31. Originally a pandemic measure instituted in March 2020 and designed to only last until September 30, 2020, the forbearance was extended nine times and ultimately halted by a provision in the debt-ceiling deal passed by Congress on June 2, 2023.
For many, the forbearance meant pausing payments, without penalty, for 41 months. For others, it resulted in 41 principal-only payments. Or a combination of both. During this period, the average borrower saved $15,000—either as extra money to live on or to help creep closer, interest-free, to paying off their balances.
So, what’s next?
Interest on outstanding student loans began accruing again. Payments will then resume in October, with the same parameters and interest rates as before the payment pause. If it hasn't already, expect your first bill to arrive about three weeks before your due date.
If you’re one of the millions of borrowers who settled into a pause-or-pay rhythm for the past three-plus years, it’s time to prepare for what might feel like a shock to the system. But we’re here to help make the transition as smooth as possible.
Prepare to repay
The very important first step to resuming payments is to locate your loans.
According to the Consumer Financial Protection Bureau, about 44% of borrowers will have a different loan servicer than before the pandemic. To find your servicer (and beat the crowds), log in to your student loan account at StudentAid.gov using your FSA ID or call the Federal Student Aid Information Center at 800-433-3243. Your servicer can help you get started by:
- Verifying your contact information.
- Determining the overall amount you owe, what you’ll owe each month, and when your first bill will be due.
- Setting up auto-pay. Even if you paid this way before the forbearance, you’ll need to sign up again.
Need more help getting started? Zogo, a free financial literacy app with which SELCO partners, has a new skill to help you resume repaying your student loans. With “Repay Student Loans,” you can get a leg up on the types of student loans, how to choose a repayment plan, and strategies to pay down debt quickly.
Pick a repayment plan
Now that you’ve tracked down your loans, it’s time to choose your method of repayment. You can review the four options below or use this loan simulator to help choose a repayment option that suits your needs.
- Standard repayment. As the basic plan for paying back student loans, you make set monthly payments over 10 years and pay less in interest. Note: Even if you made payments throughout forbearance, you’ll still have the same number of payments remaining as you had when the pause began, but interest will shrink faster.
- Income-driven repayment (IDR). If you can’t afford your current payments and want to avoid late payments and default, IDR options may be your best bet. An IDR sets payments between 10% and 20% of your discretionary income and extends your loan term to 20 or 25 years, after which you receive IDR student loan forgiveness.
- Graduated repayment. If you earn too much money to qualify for an IDR, a graduated plan might make sense. Under this plan, your payments start low and then increase every two years over a 10-year span.
- Extended repayment. Similar to a graduated plan, extended repayment starts with low monthly payments and then increases every two years for a total of 25 years. These aren’t tied to your income, however—you simply extend your term. You must owe more than $30,000 to qualify.
To further help with the transition, a temporary, 12-month “on-ramp repayment program” has been put in place for financially distressed borrowers. Those who enroll in this program won’t be penalized for late, missed, or partial payments from October 2023 to September 2024.
Additional support for borrowers
Many Americans were holding out hope that a portion, or all, of their student loan debt would be canceled. But that ended on June 30, 2023, when the Supreme Court blocked the Biden Administration’s plan to forgive up to $20,000 in debt per borrower.
Plan B was already in the works.
Saving on a Valuable Education (SAVE), which replaces another IDR plan called REPAYE (Revised Pay As You Earn), went into effect this summer. SAVE, like other IDRs, calculates monthly payments based on income and family size. Here are the main guidelines:
- Any borrower with eligible federal student loans (which are not currently in default) is eligible.
- Payments are generally 10% of your discretionary income.
- Forgiveness after 20 years for undergraduate loans and 25 years for graduate loans.
Yes, you can enroll before payments resume in October; those already enrolled in REPAYE will be automatically switched to SAVE. Here are the main enhancements of SAVE over REPAYE:
- Increases income exemption from 150% to 225% of the poverty line. Under the new plan, if you earn $32,800 (up from $21,870) or less per year or your family of four makes $67,500 (up from $45,000) or less, your monthly payments will be $0, then will be adjusted as your income grows.
- Eliminates all remaining interest after a scheduled payment is made. In other words, if you make your monthly payments, your loan balance won’t grow because of unpaid interest.
- Excludes spousal income for married borrowers who file taxes separately. Not only will a spouse’s income not be included in payment calculations, but spouses also won’t be included in family size when calculating IDR payments.
The student loan pause is over, but we hope the information and resources above prove to be beneficial in your transition. For the latest updates on student loan repayments, visit StudentAid.gov. In addition, SELCO has partnered with GreenPath to assist our members with their financial situations, including debt-management plans.