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Beginning in October, federal student loan borrowers will have to make monthly loan payments for the first time in over three years.
By freezing their accounts, the pandemic-related pause, which took effect in March 2020, helped almost 44 million borrowers.
The pause has finally ended after multiple extensions under both the Trump and Biden administrations, with Congress forbidding the president from extending it further.
It will be an unprecedented task to resume payments for so many borrowers all at once. Here’s what borrowers need to know:
When do payments restart?
The first payment is usually due in October, though not everyone has the same exact due date.
It is anticipated that borrowers will receive their bill at least 21 days in advance, which will include the amount owed and the date of due.
Those who graduated in the spring do not have to make payments until the grace period expires, usually six to nine months after leaving school.
When did interest resume?
Interest on federal student loans began accruing again in September 2020, following the effective setting of interest rates at 200 percent since March 2020. Interest rates have now returned to their pre-freeze levels, which are set and vary based on the loan.
Will my payments be the same as before the pause?
In general, borrowers should anticipate receiving the same monthly payment as they did prior to the pandemic pause. Federal student loans were essentially frozen in time unless borrowers made optional payments or other account modifications, such as consolidating their loans.
Recertifying income is typically a yearly requirement for borrowers participating in income-driven repayment plans, which base payments on family size and income rather than debt amount. Their monthly payments would fluctuate in line with changes in their income.
However, the Department of Education states that borrowers will not be obliged to provide their income information during the pause and won’t have to until March 2024 at the latest.
Recertifying one’s income is still an option for borrowers, and they might want to do so if their income has decreased or their family size has increased, according to Betsy Mayotte, president of The Institute of Student Loan Advisors, a nonprofit organization that offers free counseling on student loans.
How do I find out who’s servicing my loan?
The company or organization handling payments for millions of borrowers will be different from what it was in March 2020 when the payment pause was implemented.
For instance, in the last three years, FedLoan and Navient have terminated their agreements with the Department of Education. Prior to being transferred to Aidvantage, EdFinancial, Nelnet, or Missouri Higher Education Loan Authority, or MOHELA, the loans were held by those servicers.
Borrowers can log in to the Federal Student Aid website, at this link, to find out who is servicing their loans. They should also check to make sure the servicer has all of their correct contact information.
My payments were automatic before the pause. Will that continue?
A borrower will probably need to re-enroll by visiting their servicer’s website, even if they were already enrolled in automatic payments prior to the pandemic payment pause.
Auto pay is optional, but borrowers will save 0. 25% on their interest rate if they choose to enroll.
Setting up auto pay used to usually take a month or two prior to the Covid-19 pandemic, Mayotte said.
How do I choose the best repayment plan?
The default repayment plan for borrowers is a standard 10-year plan, but they can apply for a variety of income-driven plans that could result in lower monthly payments.
Income-driven plans do not consider the amount of debt or interest rate; instead, they base monthly payments on the borrower’s income and family size.
A borrower can request to enroll in an income-driven plan online. After submitting some information, a simulator will show how much a borrower’s payments will be under each plan.
Plans that are based on income can be a good choice for borrowers who are having trouble making their monthly payments. However, keep in mind that if a repayment plan reduces monthly payments, it might also result in an increase in the total amount owed over time due to interest, extending the loan’s payback period. It may not be the best option for everyone.
A new repayment plan launched this summer, called SAVE (Saving on a Valuable Education), offers the most generous terms and will likely offer the smallest monthly payment for lower-income borrowers.
Borrowers can generally switch plans whenever they want. According to Biden administration officials, borrowers should anticipate that the loan servicer will process their application for an income-driven plan in approximately four weeks.
Borrowers should anticipate being enrolled in the same repayment plan as prior to the pandemic pause if they haven’t made any changes to their student loans, unless they were enrolled in the REPAYE (Revised Pay As You Earn) Plan. Those debtors have been moved automatically to the SAVE plan.
What happens if I don’t pay my student loan bill?
Since interest began to accrue on September 1, failure to make a payment will eventually cause borrowers to owe more on their student loans.
However, the government is offering what it is referring to as a “on-ramp period” for the following year, ending on September 30, 2024, during which borrowers are protected from other typical consequences of missing a payment. For example, a loan servicer will not notify the national credit rating agencies that the loan is in default.
Normally, a loan goes into default after a borrower fails to make a payment for at least 270 days, or about nine months.
A default can lower your credit score and make it more difficult for you to get a mortgage or buy a car. It could take years to establish good credit again. Additionally, the federal tax refund or even a portion of the borrower’s paycheck could be withheld.
The borrower would no longer be eligible for deferment or forbearance once in default, nor would they be eligible for further federal student aid. At that point, the borrower may also be sued by the loan holder in court.
My student loans are already in default. What can I do?
Borrowers who fell into default before the pandemic pause started in March 2020 can apply for the Department of Education’s “Fresh Start” program.
Borrowers’ loans will automatically be moved from the Department of Education’s Default Resolution Group to a loan servicer and put back into an “in repayment” status if they use Fresh Start to get out of default. Additionally, the default will be erased from their credit report.
To claim these benefits, log in to myeddebt. ed. gov or call 800-621-3115. The Department of Education estimates that the procedure will take roughly ten minutes to complete.
What happened to Biden’s student loan forgiveness program?
President Joe Biden’s student loan forgiveness program was overturned by the Supreme Court in June, depriving millions of low- and middle-class borrowers of up to $20,000 in federal student debt relief.
That means that if this specific student loan forgiveness is not implemented, payments will continue.
The Biden administration is presently working on a different plan to reduce student loan debt, but it’s unclear who would qualify or how much would be erased. This route necessitates that the Department of Education go through a formal rule-making procedure, which can take several months or even years and may still run into legal issues.
Are there other ways to get student loan forgiveness?
Through a number of current debt cancellation programs, the Biden administration has made it simpler for many borrowers to apply for federal student loan forgiveness. In total, the administration has approved approximately $117 billion in loan discharges for more than 3 4 million people through early September.
Following a one-time adjustment to certain borrowers’ accounts, the Biden administration announced this summer that it was canceling $39 billion in federal student loan debt for 804,000 borrowers. The purpose of the recount was to more precisely tally some past payments made under an income-driven repayment plan.
For instance, the administration has made it simpler to be eligible for the Public Service Loan Forgiveness program, which erases residual debt after a public sector employee makes qualifying monthly payments for ten years.
Under a program called borrower defense to repayment, the Department of Education has also made it simpler for borrowers who were deceived by their for-profit college to apply for student loan forgiveness, as well as for those who are permanently disabled.
This headline and story have been updated with additional information. Ad Feedback Ad Feedback Ad Feedback Ad Feedback Ad Feedback.
FAQ
Are student loan repayments going to restart?
September 1, 2023 marked the return of interest on federal student loans, and October 2023 saw the start of payments.
How do I know when my student loan payments start?
Most federal student loans have repayment terms that start six months after you graduate from college or cease to be enrolled full-time. PLUS loans begin to repay as soon as the entire amount is disbursed (paid out). for an extra six months following your departure from education or your decline to part-time status.
What day do student loan payments resume?
Student loan payments have resumed since the COVID-19 payment pause ended. The first payment that was due for the majority of borrowers after the payment pause ended was in October 2023.
When can I expect my student loan to be forgiven?
Even in cases where the loans are not presently subject to an IDR plan, automatic forgiveness will be granted to any borrower with ED-held loans who has accrued at least 20 or 25 years of repayment delay.
Read More :
https://studentaid.gov/help-center/answers/article/when-do-i-have-to-start-repaying-federal-student-loans
https://www.cnn.com/2023/08/31/politics/student-loan-payments-resume/index.html