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Preparing for the Resumption of Student Loan Payments

After a three-year break, student loan payments will come due again in October — but without the student debt relief for tens of millions of borrowers.

On June 30, the Supreme Court blocked the Biden administration’s plan to erase up to $20,000 in federal student loans, which could have completely wiped out the debts of roughly 20 million people and lowered balances for many more.

Now, many of those borrowers must come to terms with what turned out to be a fleeting victory and prepare for payments to resume, though President Biden did offer a glimmer of hope: The White House announced a separate effort to provide loan cancellation, but this effort will take months at a minimum and its scope and the number of people who could benefit is not yet clear.

The Biden administration also offered a few more consolation prizes in the wake of the highest court’s decision: Major components of the administration’s more affordable loan repayment plan — which could eventually cut millions of borrowers’ payments by at least half — will be ready before repayment begins. And borrowers who miss payments won’t be reported as late for the first year.

Payments have been on hold since March 2020 as part of a pandemic relief measure. The payment pause had been extended numerous times over the course of two presidential administrations, but in June a restart date was cemented into legislation as part of the debt ceiling agreement.

What’s the first thing I need to do?

Make sure your student loan servicer can find you. Go to your servicer’s website and verify that it has your latest contact details: email address, mailing address and phone number.

Not sure who your servicer is? Go to StudentAid.gov, find your account dashboard and scroll down to the “My Loan Servicers” section. You can also call the Federal Student Aid Information Center at 1-800-433-3243.

When will my payments restart? And how?

Payments will become due again in October, and interest will start accruing in September. You should receive a notice or billing statement well before then, which should include your payment amount and due date. If you don’t want to wait, you can contact your servicer for that information now.

This is important: If you were on an automatic payment plan before the pandemic — that is, before March 13, 2020 — you must opt back in. Your servicer should reach out to you about this. If you don’t respond, your payments will not automatically restart.

If you signed up for autopay after that date, automatic payments will resume. Borrowers who have continued to make payments don’t have to do anything at all.

What happens if I miss my first payment?

If you miss the first payment, don’t panic.

The Biden administration said it will provide a yearlong “on-ramp” to help ease the transition for borrowers who may struggle with making their payments — if a borrower misses a monthly bill, for example, they won’t be considered delinquent from Oct. 1 to Sept. 30, 2024. They also won’t be reported to the credit bureaus, placed in default or reported to debt collection agencies.

But interest would still begin to accrue starting in September, student loan experts said, leaving borrowers deeper in debt.

“During this period, if you can pay your bills you should,” President Biden said during a news conference on Friday.

I can’t afford my loan payment. What are my options?

Thankfully, federal borrowers have many options, and the calculation will eventually become a lot simpler: The Biden administration’s new repayment option will probably be the most affordable plan for most people, at least when it’s fully up and running. But there are generally three categories:

Fixed payment plans: These include standard (fixed payments), graduated (your payments rise) and extended (you pay over a longer time) repayment plans.

Income-driven repayment plans: These plans base payments on your income and family size and may yield monthly payments as low as $0. After a couple of decades of payments, the government forgives whatever balance you’re still carrying. These plans will probably be the preferred option for many borrowers who struggle with making their payments.

Last resorts: Borrowers can also request deferment or forbearance, both of which temporarily put payments on hold — though there can be significant added costs in the long run. With forbearance, payments stop but interest still accrues. If the interest is not paid, it’s added to the loan’s principal balance. Deferment is similar, but subsidized loans — which generally have slightly better terms — won’t accrue interest while they’re paused.

Tell me more about income-driven plans.

The rules are complicated, but the gist is simple: Payments are based on your earnings and family size and readjusted each year. After you make monthly payments for a set number of years — usually 20, sometimes 25 — any remaining balance is forgiven. (The balance is taxable as income, though a temporary tax rule exempts balances forgiven through 2025 from federal income taxes.)

For the moment, there’s a confusing assortment of plans available. The alphabet soup includes PAYE (Pay as You Earn), REPAYE (Revised Pay as You Earn), I.C.R. (Income-Contingent Repayment) and two versions of I.B.R. (Income-Based Repayment).

Major components of the Biden administration’s new plan — called SAVE — are projected to be available before repayment starts in October, but we’ll explain more on how it works below.

For the existing plans, monthly payments are often calculated at 10 or 15 percent of discretionary income, but one plan is 20 percent. And discretionary income is usually defined as the amount earned above 150 percent of the poverty level, which is adjusted for household size.

The formulas aren’t adjusted for local cost of living, private student loans or medical bills, among other things. But they remain a more manageable solution for many borrowers.

The Biden administration finalized its less expensive income-driven plan. What’s the status?

The new plan, called Saving on a Valuable Education, or SAVE, would revise the existing income-driven plan known as REPAYE, and could reduce payments for millions of borrowers by more than half after it is fully implemented.

The Education Department released its initial proposal in January, and the final plan appears to hew closely to the original version. The White House said borrowers will be able to take advantage of the new plan later this summer.

But the program will be rolled out in phases. Three big pieces of the plan — including shielding more of borrowers’ income from the repayment formula — will become available before payments resume. But several other benefits (including cutting payments to 5 percent from 10 percent on undergraduate loans) won’t be implemented until July of next year.

I want to sign up for the new SAVE plan. Is there anything I can do now?

Yes. Borrowers who are already in the REPAYE plan will be automatically enrolled into SAVE, according to the administration, and those borrowers will see their payments automatically adjust with no action on their part.

That means borrowers could enroll in the existing REPAYE now and be automatically transferred to SAVE as soon as the loan servicers are capable of doing so. You can do so here. (Keep in mind that the names SAVE and REPAYE may be used interchangeably during the transition.)

How exactly will the new plan work?

The proposed plan would become more generous in several ways. To start, it would reduce payments on undergraduate loans to 5 percent of discretionary income, down from 10 percent in the existing REPAYE plan.

Graduate debt is also eligible, but borrowers would pay 10 percent of discretionary income on that portion. If you held both undergraduate and graduate debt, your payment would be weighted accordingly.

The proposed plan would also tweak the payment formula so that more income was protected for a borrower’s basic needs, which would reduce payments overall. That change would also allow more low-income workers to qualify for zero-dollar payments.

Some borrowers wouldn’t get access, however: The new plan is not open to parents who borrowed to pay for their children’s schooling using Parent PLUS loans. They’re eligible for only one income-driven plan, I.C.R.

Once the SAVE plan becomes available, the Biden administration has proposed simplifying the I.D.R. landscape and limiting new enrollment into certain plans.

Borrowers with Parent PLUS loans, however, would not lose access to the I.C.R. plan. They could continue to enroll in that plan after they consolidated into a so-called direct consolidation loan.

How do I choose the best plan?

The loan simulator tool at StudentAid.gov can help. It will guide you through the options and help you decide which plan best fits your goals. But it’s unclear how quickly the new SAVE plan will be added to the tool.

It is easy to use. When you sign in, it should automatically use your loans in its calculations. (You can add other federal loans if any are missing.) You can also compare plans side by side — how much they’ll cost over time, both monthly and in total, and if any debt would be forgiven.

The SAVE plan is expected to provide the lowest payment for most borrowers and will probably be the best option for most.

“That said, the best plan for any given borrower will likely continue to depend on the borrower’s goals, as some borrowers may be able to pay less interest or pay off their loans sooner by making higher monthly payments using a standard plan or potentially via PAYE or I.B.R.,” said Abby Shafroth, a lawyer at the National Consumer Law Center who focuses on student loan issues.

I was in an income-driven plan. What happens now?

You’ll still be enrolled in the same plan. And there’s good news: All your months of paused payments are treated as if you had paid, which means that time counts toward the years you must accrue to have your loan forgiven.

Participants in an income-driven plan must recertify their income and family size each year to remain enrolled, but you won’t be asked to do this immediately — the earliest you will be asked is six months after the payment pause ends, experts said, or probably near the end of February.

You may want to do it sooner: If your income dropped or your family grew, updating your information is likely to lower your payment. To update your information, visit the I.D.R. application online and select the button next to “Recalculate My Monthly Payment.”

Many borrowers received credit on their payments, bringing them closer to loan forgiveness. How will I know if I will benefit and where my loan stands?

The Biden administration created a program to address administrative problems that long plagued the student loan system, particularly for borrowers enrolled in income-driven repayment plans and those seeking relief through its Public Service Loan Forgiveness program.

Millions of federal borrowers have received one-time account adjustments, which will revise their accounts so that more of their payments will count toward the required number of payments needed for loan forgiveness.

The adjustments also apply to borrowers who are not enrolled in income-driven repayment programs. This acknowledges that many financially distressed borrowers didn’t receive all of their options when they sought help from their loan servicers, or were steered into less helpful choices, like forbearance.

Most of these adjustments will happen automatically, but there are exceptions for loans that aren’t held by the Education Department. For more information, see my colleague Ann Carrns’s article.

My loans were in default before March 2020. What is my status now?

Most borrowers who fell into default before March 2020 have a one-time chance to wipe the slate clean under the administration’s Fresh Start program. But some benefits are automatic, and others will require borrowers to take action.

First, the automatic: Borrowers in default will not be subject to collection efforts or have their wages garnished through roughly August 2024, which basically gives them one year after the payment pause lifts to make arrangements to get back on track. They are also permitted to apply for federal student loans again, as many borrowers in default haven’t completed degrees. And finally, defaulted borrowers’ loans are already being reported to the credit bureaus as being current.

But all of this is temporary unless you take some extra steps. Borrowers must contact their loan holder to keep their loans out of default for the long term. If they don’t take action, loans will fall back into default a year after the pause ends.

It’s pretty simple: Contact the Education Department’s Default Resolution Group — by phone, online or mail — and ask it to take your loans out of default through the Fresh Start program. It will transfer your loans to a regular loan servicer (which can take four to six weeks) and wipe the record of default from your credit report. Taking these steps will also restore access to income-driven repayment plans and forgiveness programs, including Public Service Loan Forgiveness.

I was behind on my payments. What are my options?

Delinquent borrowers will also receive a fresh start: Their accounts will be considered current.

That should remove the pressure for borrowers who were in danger of falling into default, which happens if you’re at least 270 days behind. If you were delinquent, find out what your payment is expected to be; if you still cannot afford it, consider enrolling in a different repayment plan that will lower your bill.

What do we know about the new, separate loan cancellation effort that the Biden administration announced after it lost the Supreme Court case?

The White House and the Education Department intend to provide loan cancellation using the so-called “settlement and compromise” authority it has under the Higher Education Act. Details were scant at a White House news conference, including who would qualify and how much debt might be eligible for cancellation.

In a 2020 letter to Senator Elizabeth Warren, three lawyers from Harvard Law School’s Project on Predatory Student Lending suggested that the Education Department could “compromise” a debt “when its collection is in doubt because the debtor is unable to pay the full amount in a reasonable time or if the cost of collecting a debt is greater than the amount likely recoverable in a single installment.”

Several senators, in a 2022 letter to Education Secretary Miguel Cardona, made similar points about borrowers who have defaulted on their loans.

It’s likely that any such plan would face its own legal challenge.

Where can I get more help?

Besides your servicer, groups like the Institute of Student Loan Advisors, known as TISLA, can provide free guidance on what options may best work for you. For New York State residents, EDCAP, a nonprofit focused on student loans, also offers help. And some employers and other organizations have hired companies like Summer, which helps borrowers sort through the options.

Borrowers need to be on high alert for scam artists offering debt relief and other services. If you’re unsure whether the help you’re being offered is legitimate, hang up, don’t respond to the email — and reach out to your servicer using the number printed on your bill or the government website. You can file complaints through the Federal Trade Commission and your state’s attorney general.

Ron Lieber contributed reporting.

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