Some Americans disappointed by the Supreme Court’s decision to strike down President Joe Biden’s plan to forgive up to $20,000 of student loan debt are facing a rude awakening this fall.
After three and a half years of no interest or required payments on federal student loans, borrowers holding such debt will soon be required to start making payments again. Interest on federal student loans will resume in September, and payments will be required beginning in October.
Meanwhile, legal efforts to block student relief continue — conservative groups have sued to stop the Biden administration’s July decision to forgive $39 million in student loan debt for 804,000 borrowers, and an April 2023 lawsuit to end the payment pause aims to thwart the possibility of extended forbearance.
Staring down the prospect of a new monthly expense in October, many borrowers may experience “payment shock.” Less than a third of borrowers know when their payments are resuming, according to a recent survey from U.S. News & World Report, and nearly half said they aren’t financially ready to start paying down their education debt again.
Here’s what you need to know about student loan payments, including when they’re resuming and what you can do to prepare.
When will student loan payments resume?
Student loan interest will resume on Sept. 1, 2023, and payments will be due in October, according to the Department of Education website.
Exactly when in October depends on which loan servicer is handling your account, CNN reported. The DoE said borrowers will be notified about details “well before payments restart.”
Which student loans are currently paused?
The moratorium on payments and interest included all federally held student loans, regardless of what company is servicing the loan. Eligible student loans include:
- Direct federal student loans.
- Federal Family Education Loan program loans held by the Department of Education, aka FFEL.
- Federal Perkins Loans held by the Department of Education.
- Defaulted FFEL loans not held by the Department of Education.
- Defaulted Health Education Assistance loans, aka HEAL.
Student loans that are not eligible include:
- Nondefaulted FFEL loans not held by the Department of Education.
- Federal Perkins Loans that are not held by the Department of Education.
- Nondefaulted HEAL loans.
- Private student loans.
How can I prepare for making student loan payments again?
The Consumer Financial Protection Bureau estimates that one in five student loan borrowers will struggle to make payments once the pause ends. While more borrowers will be eligible for Biden’s new income-driven repayment plan, others with higher incomes will face a significant new budget item every month.
Here’s how to prepare for student loan payments to resume.
1. Contact your student loan servicer. If you moved or changed financial institutions, it’s important to provide current information. Even if you didn’t, you may need to reestablish automatic payments.
During the pandemic, some companies exited the student loan business, so a different one may be managing your account.
You can locate your loan servicer on the Department of Education’s Student Aid website.
2. Consider an income-driven repayment plan. Due to the extended pause, you may not have been budgeting for student loan payments over the past three years. You might have new expenses, a lower-paying job or any other number of variables.
If you don’t think you’ll be able to make your new monthly student loan payments, look into an IDR plan. These plans make monthly payments more manageable and prevent borrowers from missing payments or defaulting, but they also extend student loans, making them take longer to pay off. The main IDR plans are:
- SAVE (saving on a valuable education) plan (formerly called REPAYE)
- PAYE (pay as you earn) plan
- IBR (income-based repayment) plan
- ICR (income-contingent repayment) plan
The new SAVE plan was announced by President Biden immediately after the Supreme Court issued its ruling invalidating his student loan debt relief plan. It will cap monthly payments at 5% of discretionary income, down from 10% under REPAYE. At a press briefing, Secretary of Education Miguel Cardona said that borrowers earning less than $33,000 will have their monthly payments reduced to $0.
Some elements of the SAVE plan are in effect now, while others won’t take effect until July 2024. On July 31, 2023, the Department of Education launched a beta application for the new SAVE plan. In the announcement of its beta app, the Education Department promised that applications submitted in summer 2023 will be processed “in time for your first payment due date” in October.
3. Find out your new monthly payment. If you’re on a traditional repayment plan, your loan servicer may recalculate your monthly payment based on your current balance and the remaining repayment schedule, the StateAdvance reported. You can check the Student Aid website for updates on resuming payments.
If you’re on an IDR plan already, payments will typically return to what they were before the pause, unless you’ve switched plans or recertified.