After a 42-month pause on student loan interest, the day is finally here. As of Sept. 1, the interest and repayment pause is officially over, and interest will begin accumulating on federal student loans right away.
With that in mind, and to help you better manage the financial burden of resuming student loan repayment, here's a quick guide to determine how much interest is accumulating on your student loans, and some of the steps you can take if you might have trouble repaying your loans.
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How much student loan interest will you pay?
The short answer is that it depends on your student loan balance and the average interest rate on your loans.
Here's a quick way to figure out how quickly interest will accumulate on your student loan accounts. Simply take your current outstanding balance, multiply it by your average interest rate (in decimal form), and then divide by 12 for your monthly interest.
For example, if you owe $40,000 on your student loans and have an average interest rate of 6% (0.06), multiplying these together shows annual interest of $2,400. Dividing by 12 shows that your interest is accumulating at a rate of about $200 per month. In other words, since interest starts accumulating on Sept. 1, if you check your student loan account on Oct. 1, you should see about $200 in accrued interest.
When do you have to pay?
Although student loan interest has started accumulating as of Sept. 1, it's important to note that borrowers won't have any payment due until some point in October. The exact date is different depending on your particular loans, and your loan servicer will notify you several weeks before a payment is due.
What if you don't start paying in October?
Although your first official student loan payment due date after the restart will be in October, the Biden administration has announced a 12-month repayment "on-ramp."
Essentially, this provides a grace period for people who would experience financial hardship by restarting their student loan payments. Any missed payments through September 2024 won't be reported to credit bureaus, won't be referred to collection agencies, and won't put your loans into default. However, it's important to know that interest will continue to accumulate, and as we already saw, it can add up quickly over several months of non-payment.
Ways to reduce your student loan interest
Even if you aren't sure you can resume student loan payments, the new SAVE Plan could be a better alternative than simply not paying. For many borrowers, including any families of four with incomes below $67,500, required payments under the SAVE Plan will be $0. Plus, under the SAVE Plan, any unpaid interest doesn't accumulate. If you were previously enrolled in the REPAYE income-driven plan, you'll be enrolled in the SAVE Plan automatically, and any other federal student loan borrowers can enroll on the Department of Education's website.
It's also worth noting that most student loan servicers will reduce your interest rate by 0.25% if you enroll in autopay. Since millions of borrowers now have a different loan servicer than they did before the payment pause, you may have to reenroll in autopay even if you were previously enrolled.
