After more than 40 months, the repayment pause for federal student loans is officially over. Interest started accumulating on federal student loans in September, and borrowers will have their first payments in 3 1/2 years coming due in October.
However, there's quite a bit to know about the resumption of student loan payments, especially if you're concerned about being able to fit them into your budget. Here are two big student loan developments that just went into effect that borrowers should keep in mind.
Image source: Getty Images.
You have to make payments -- but not really
The repayment pause was officially ended by the debt ceiling deal that was signed into law earlier this year. The Biden Administration recognized that after not worrying about federal student loans for several years, borrowers might feel financially strained trying to fit their student loans into their budgets.
For this reason, the Department of Education is offering a 12-month "on-ramp" for repayment. This is essentially the same thing as student loan forbearance -- except you don't have to ask for it.
In simple terms, your student loan payments will technically be due starting this month. But if you don't pay, the on-ramp eliminates most of the consequences. Late or missed student loan payments won't be reported to the credit bureaus, collection activity won't be started, and your loans won't be in default for non-payment. This will last through the end of September 2024.
However, it's important to mention that there's one consequence of non-payment that the on-ramp doesn't address -- interest. If you don't pay your student loans during the on-ramp period, interest will continue to accumulate on your account, so you could end up owing thousands more than you do now if you choose not to make payments for the full 12 months.
Your repayment plan may have changed
You might have seen headlines about the new SAVE income-driven repayment plan. You can watch my thorough rundown of the SAVE Plan, but the key points are:
- The threshold for "discretionary income" is rising from 150% of the federal poverty level to 225%, which means more borrowers will qualify for a $0 monthly payment and millions of additional borrowers will see their payments go down.
- Required payments will fall to 5% of discretionary income for undergraduate loans (currently 10% under most IDR plans).
- If the required payment isn't enough to cover the loan's interest, no additional interest will be added to the loan balance (this is a big change).
- Loans with original balances of $12,000 or less are eligible for forgiveness after 10 years in repayment, regardless of how much is still owed.
Millions of borrowers will be enrolled in the SAVE Plan automatically. It's replacing the popular REPAYE plan, so if you were enrolled in that before the payment pause, you don't need to do anything. If not, you can enroll quickly and easily through the Department of Education's website.
What to do if you're having trouble paying?
If you're having a difficult time figuring out where your student loan payments will fit in your budget, it may seem like the logical answer is to take advantage of the repayment on-ramp. While this can be a good option in some cases, it's generally a good idea to apply for the SAVE Plan first to see what your required payment will be.
And you might be surprised. Many borrowers will qualify for a $0 monthly payment. Even if you don't, your payment could fall significantly from what it was prior to the payment pause. The biggest reason why this could be the better option is because interest won't accumulate if you're enrolled in the SAVE plan, but it will if you simply don't make payments and take no other action.
Finally, if you're having trouble paying or even figuring out how to pay, get in touch with your loan servicer. Many people don't realize that some of the largest student loan servicers got out of the business during the payment pause, so you may have a different loan servicer than you previously had.
