Student Loan Payments Resume

Highlights:

• Borrowers are expected to resume student loan payments when the federal government's pause expires on August 31, 2023.
• The Biden administration has several programs in place to ease the financial strain of student loan repayment. These include: a 12-month on-ramp period, adjustments to existing income-driven repayment plans and the new SAVE repayment plan.
• Before student loan repayments resume, be sure to check in with your loan servicer to review your existing loan balance and expected payment amount.

Federal student loan borrowers enjoyed a three-year break from loan payments and interest charges. However, the student loan payment pause expires on August 31, 2023.

What does this mean for student debtholders? If you're a borrower, interest on your federal student loan will begin accruing in September 2023. Loan payments will resume in October 2023. Here are a few things to know in order to meet your loan payments head-on.

What is Biden's student loan repayment plan?

As repayment resumes, the Biden administration has a plan in place to help reduce the financial strain of student debt. Aid for eligible borrowers may include:

• 12-month on-ramp period. To protect borrowers from becoming delinquent on their loans, late or missed payments between October 1, 2023 and September 30, 2024 won't be reported to the three nationwide consumer reporting agencies (Equifax^®, TransUnion^® and Experian^®) or referred to collection agencies. Also, during that on-ramp period, no student loans will be placed in default (which exposes borrowers to legal claims and may limit future access to credit opportunities).
• Income-driven repayment (IDR) plan expansion. An IDR plan allows borrowers to make monthly loan payments based on income and family size. When borrowers enroll in an IDR plan, their loans may be automatically forgiven after a certain period of time, provided they have made a certain number of qualified payments. To make this forgiveness option more accessible, the federal government has temporarily expanded the definition of a qualified payment for certain borrowers.
• Fresh Start program. Borrowers with defaulted student loans may be eligible for certain benefits under the Fresh Start program. Fresh Start may remove some negative credit information related to defaulted loans. It may also change the defaulted loan's repayment status and renew access to federal aid, among other benefits. Borrowers enrolled in Fresh Start will also be able to choose new repayment plans, including IDR options.
• Saving on a Valuable Education (SAVE) plan. The SAVE plan is a new option for debtholders looking to lower their monthly payments. The SAVE plan changes the formula used to calculate how much you'll owe each month. It also offers most borrowers the lowest monthly payments of any existing IDR plan. The SAVE Plan also does not charge borrowers unpaid monthly interest on subsidized and unsubsidized loans provided they make their monthly payments.

How to prepare for the student loan payment restart

These diverse debt relief options may leave you uncertain about how best to handle your student loan payments. Here are a few places to start:

• Review your payment schedule. Visit your Federal Student Aid (FSA) account at studentaid.gov. Review your loan servicer, loan balance, payment due date and existing payment plans. You can generally expect to receive a billing statement from your servicer before your first payment is due.
• Review your repayment options. Before payments resume, determine whether your repayment plan still suits your financial situation. The FSA's Loan Simulator tool can help you compare repayment strategies.
• Apply for the SAVE plan. The SAVE plan may help you reduce your monthly loan payments. Borrowers who are already enrolled in the REPAYE IDR plan will be switched automatically to the SAVE plan. If you're not enrolled in the REPAYE plan, visit studentaid.gov/save-plan and fill out the IDR application to qualify for the SAVE plan.

Creating a budget for the student loan restart

You'll need to take stock of your budget and build your debt payments back into your monthly expenses. The most successful budgeters balance their needs and wants along with long- and short-term savings goals. To begin, list your:

• Mandatory monthly expenses, like: rent, food and debt payments
• Discretionary monthly expenses, like: entertainment and retail purchases
• Monthly savings goals

Then, decide how to divide your monthly income across each of these categories. It's critical to prioritize your mandatory expenses, including your student loan payments.

The 50/30/20 method simplifies this process by splitting your monthly paycheck according to three percentages: 50% of your income goes to mandatory expenses, 30% goes to discretionary expenses and 20% goes to savings. Adjust the percentages to fit your financial circumstances. If you need to make room in your budget, look to reduce your discretionary expenses.

Even with a customized budget, some borrowers may still struggle to make their student loan payments. If you do experience hardship, contact your loan servicer immediately to determine whether you qualify for a repayment plan or other relief, such as deferment or forbearance.

If you haven't made student loan payments for several years, it may be difficult to fit them back into your budget. However, doing so is an important step on the path toward overall financial health.