Federal student loan repayment and interest have been on hold since early 2020. While borrowers could choose to make payments and take advantage of the no-interest environment, the vast majority of federal student loan borrowers haven't paid a dime toward their loans in more than three years.
The repayment pause was never meant to last this long and had been set to expire once President Biden's student loan forgiveness plan made its way through the Supreme Court. However, as student loan payments had been set to restart, only to be postponed several times already, there was no reason to think it couldn't happen again.
The recent debt ceiling deal could change things. Specifically, the proposal includes a provision that would terminate the student loan repayment pause after Aug. 30, 2023, regardless of what happens with loan forgiveness or anything else.
In short, it's starting to look like student loan payments will actually restart in a few months. If you're worried about what repayment will mean to you or simply want to know what your options are, here are three potential choices that could help you resume student loan payments and set yourself up to ultimately get rid of your student loan debt once and for all.
Image source: Getty Images.
Income-driven repayment
The standard student loan repayment schedule involves a 10-year repayment term with equal monthly payments, with the entire balance paid off by the end. However, there are several other repayment options, including some based on your income. Most common is the pay-as-you-earn (PAYE) plan, which caps student loan payments at 10% of the borrower's discretionary income and forgives any remaining balance after 20 years.
It's also worth noting that the debt ceiling deal has no effect on any of President Biden's other student loan plans, one of which is to create a new income-driven repayment plan that only requires 5% of discretionary income (half of the current amount).
Refinancing
If you don't need (or won't qualify for) income-driven repayment, consider refinancing your student loans. By refinancing with a private lender, you could potentially lower your interest rate or get a different repayment term.
This could be an especially good option if you have a high credit score and could qualify for a lender's best rates. But by refinancing, your loans would no longer qualify for any benefits available for federal student loan borrowers, including Biden's forgiveness plan if it gets approved by the Supreme Court.
Forgiveness programs
Borrowers in income-based repayment plans could eventually qualify for student loan forgiveness, and the President's plan, if approved, could wipe out as much as $20,000 of your loans. But there are also public service loan forgiveness (PSLF) and teacher loan forgiveness programs, which can forgive some or all of your student loan debt.
The PSLF program, in particular, can be a good one to pursue, as it covers a broad range of employment and doesn't have an upper limit on the amount of debt that can be forgiven. Plus, even if you didn't make any payments during the payment pause, all of those months count if you were working for a qualifying employer. If you were, fill out a PSLF certification form for those months and file it with your loan servicer.
There's a lot we don't know yet
While the debt ceiling deal would terminate the payment pause, we don't know the full details of what that will look like. For example, it's entirely possible that borrowers will be given some sort of grace period to allow time to enroll in a repayment plan of choice. And if loan forgiveness gets approved, we have no idea what the actual timetable for the forgiveness will be.
The bottom line is that this is still an evolving matter. It's important for student loan borrowers to not only keep all options in mind, but also stay informed about the latest developments as the story unfolds.
