Due to recent legislation passed by Congress, more than 28 million Americans have resumed making payments on their loans after a three-year pause1. For many federal student loan borrowers, the resumed payments could come as a shock to the system.
The good news is that the restart will be gradual, and there’s still plenty of time to prepare. Here are the top eight things you need to know about student loan payments restarting.
1. Your bills can be found in your student loan servicer account
You’ll receive an official notice when your student loan payments resume. However, your student loan bills should be visible either on your Federal Student Aid account or your student loan servicer account.
A student loan servicer is the company designated by the government to manage the administrative aspects of federal or private student loans. They handle the billing, repayment options, and customer service for borrowers, serving as the intermediary between the borrower and lender.
If you’re not sure who your servicer is, don’t fret. You can typically locate your servicer’s name by logging into your federal student aid account, or by looking for past mail or email communications that your servicer has sent about your loan.
2. Your loan servicer may have changed
Often, the federal government transfers loans to new service providers when it terminates or swaps contracts with various financial partners. That’s happened for millions of borrowers since the pandemic. Before you restart your loan payments, contact your loan servicer to make sure your loans haven’t been changed over to a new provider.
Here’s how to contact your loan servicer:
Check recent emails or letters from your previous servicer or the U.S. Department of Education, as they often provide details about the transfer. They often tend to list your servicer’s contact information.
Log into your student loan account on StudentAid.gov to check your loan details and current servicer information.
Visit the National Student Loan Data System (NSLDS) website. Here, you can access information about your federal student loans, including your loan servicer’s contact details.
3. Interest has begun accruing again
During the student loan payment pause, interest charges did not accumulate on federal student loans. However, this accumulation, called “interest accrual,” will restart this year. This resumption applies to most federal loans, but there may be exceptions. These include:
The U.S. Department of Education has stopped capitalizing interest on federally held Direct Loans. There are exceptions for borrowers exiting deferment or leaving specific income-driven student loan repayment plans.
Participants of the Biden administration’s new SAVE plan won’t accrue interest beyond their obligatory payments. These plan participants can achieve total debt forgiveness in 10 years for balances under $12,000. That’s much faster than the standard 20-year period.
4. If you’re having trouble making payments, there are new hardship options
The other good news is that federal student loan payments won’t resume right away. Instead, there’s an on-ramp period designed to help borrowers readjust to making monthly payments.
The student loan on-ramp lets students delay their payments for another 12 months after the pause ends. During this period, missed payments won’t be reported to credit bureaus, and borrowers who take advantage of this delay won’t suffer damage to their credit scores. The on-ramp period program spans from October 1, 2023, to September 30, 2024.
Do bear in mind, however, that interest will continue to accrue during the on-ramp period, which could increase the long-term cost of your loan. Consider the following when deciding whether to pay your student loans during the on-ramp:
Can you afford payments without straining your budget significantly?
How much will you save in interest if you continue to make monthly payments during the on-ramp?
Does your repayment plan align with forgiveness programs that require qualifying payments?
Do you want to pay off your loans faster so you can focus on other financial goals, such as paying off credit cards, buying a house, or investing in further higher education?
The SAVE plan
Following the Supreme Court’s block on student debt cancellation in June, the Department of Education introduced its new income-driven repayment plan, Saving on a Valuable Education (SAVE). This new program replaces the previous REPAYE plan.
The SAVE plan offers a number of benefits. For example, individuals earning under $32,800 and families earning under $67,500 receive $0 monthly student loan bills.
As of November 8, approximately 5.5 million borrowers are enrolled in SAVE, with more than 2.9 million qualifying for $0 monthly payments. Here’s what makes SAVE different from other IDR programs:
Expanding access: This new plan alters the calculation for payments, now setting discretionary income at 225% of the federal poverty guideline. That makes more borrowers eligible.
Halving the required payments: Undergraduate borrowers on the SAVE plan pay just 5% of their discretionary income toward their student loan debt each month. Before, they had to pay at least 10%.
Expediting forgiveness: Borrowers with principal loan balances under $12,000 can achieve forgiveness in just 10 years instead of the previous 20 to 25. Each additional $1,000 borrowed above this threshold extends the forgiveness timeline by one year.
Canceling unpaid interest: The government agrees to cover any unpaid monthly interest as long as the borrower maintains timely monthly payments.
5. You may have to re-enroll in autopay
When payments restart, you’ll need to double-check that you’re still enrolled in autopay. Some servicers may have automatically removed individuals from the service when the payment pause began. You can usually resume automatic payments through your loan servicer’s website.
6. Your IDR information may need recertifying
If you were enrolled in an Income-Driven Repayment (IDR) plan, you may be due for your annual recertification. This process recalculates your monthly payment amount based on your current income and any recent family changes. Recertification is mandatory each year.
If you were an IDR participant before the payment pause, your window for recertification extends six months after the pause ends (March 2024). If your income dropped or family size changed, consider early recertification for reduced payments.
7. You may benefit from the one-time IDR adjustment
The one-time IDR adjustment is a program aimed at recalculating payments for eligible borrowers in Income-Driven Repayment Plans or who are pursuing the Public Service Loan Forgiveness program (PSLF). It reviews and adjusts payment counts, potentially accelerating loan forgiveness.
You’ll benefit from this adjustment if you’re currently on an IDR plan or were in the past. Additionally, those aiming for PSLF or who have Direct or Federal Family Education Loan (FFEL) program loans held by the U.S. Department of Education are included.
To find out if you’re eligible or will benefit, check if you’re enrolled in an IDR plan, pursuing PSLF, or have FFEL loans. Review notifications from the Education Department or your loan servicer for any updates regarding your payment counts, due dates, student loan forgiveness, or any adjustments made to your account. You won’t have to take action – the Department of Education should notify you if you qualify.
8. You may be eligible to lower or pause your payments
President Joe Biden’s new SAVE plan and the student loan on-ramp aren’t the only ways to get student debt relief from student loan debt. Here are some other ways for you to lower your payments, pause them, and get out of debt sooner.
The new SAVE plan is just one of four income-driven repayment plans that cap your monthly bills at a percentage of your income. Depending on your family size, location, and income, you could be eligible to have your payments reduced to as low as $0 in some extreme circumstances.
Keep in mind that as your family and income change, so will your eligibility for income-driven repayment, which is why it’s important to report these updates to the federal government regularly.
Deferment or forbearance
Deferment and forbearance are both temporary payment pauses offered by the federal government for borrowers experiencing hardship. In forbearance, interest accrues on all types of direct loans, but in deferment, interest accrues on only some types of direct loans.
Deferment and forbearance aren’t long-term solutions, and should only be used in extreme circumstances since they’re likely to add more interest to your student loan debt in the long run.
Student loan consolidation
Student loan consolidation is the process of combining multiple federal student loans into a single Direct Consolidation Loan from the U.S. Department of Education.
Consolidation can simplify your monthly payments, making it easier to stay organized and less likely for you to miss payments because you can’t keep track of your bills.
It can also lower your monthly payment when you choose to extend your repayment plan to 20 or 25 years, for example, because your payments will be spread out over a longer time period than the standard 10-year repayment plan for many federal student loans. Keep in mind that extending your repayment term will likely increase the amount of interest paid over the life of the loan.
Student loan consolidation, unlike student loan refinancing (which is done with a private lender), allows you to maintain eligibility for federal benefits like forgiveness, forbearance, deferment, and income-driven repayment. However, you can only consolidate federal student loans. Private student loans can only be combined through student loan refinancing.
Student loan refinancing
Student loan refinancing is the process of borrowing a loan from a private lender to pay off your old loans, either federal or private, or a combination of both.
This new loan will have a new repayment term and interest rate, and if your financial situation (credit score, income, debt-to-income ratio) has improved since you took out your original loan, you may be eligible for a lower interest rate2 than you had on your original loans.
Student loan refinancing is the one way to get a lower interest rate on your loans. Federal student loan consolidation will result in a new interest rate, but it will simply be a weighted average of the interest rate on your current loans.
When you pick your new repayment plan, you can also choose a longer term than your original loans, which can lower your monthly bill. Or you can choose a shorter repayment term and pay off your loans faster.
Keep in mind that when you extend your repayment term, you’re likely to spend more on interest over the life of the loan, and when you shorten it, you’re likely to have higher monthly payments.
Still, these trade-offs may be worth it if you need some breathing room in your monthly budget, or you want to get out of student loan debt as fast as possible.
Get a free rate check from NaviRefi
One way to potentially save money and get a fresh start is through student loan refinancing. If you qualify, you could lower your interest rate or reduce your monthly payments. That could save you money in the long term and even accelerate your journey towards debt freedom. Ready to refinance your student loan debt? Check your new rate and monthly payment for free at NaviRefi.com.