What you need to know
The long pause on federal student loan payments is coming to an end. For over 3 years, student loan borrowers have had a break with payments and interest suspended during the global pandemic. However, the Federal Government recently voted for the pause to conclude, and resuming payments may affect many of the 43 million borrowers nationwide.
The pandemic payment pause
When the COVID-19 pandemic started in March 2020, federal student loan payments were suspended. This measure, known as forbearance, was initially introduced under President Trump as an emergency response to the financial disruption caused by the pandemic.
Since its initial implementation, the forbearance measure has been extended 9 times. During forbearance, the interest rate on federal student loans was set to 0%, essentially freezing loan balances for the duration of the pause. This relief effort granted millions of borrowers a much-needed break, particularly those who left school in 2020 or later and were facing their first-ever student loan payments.
Payments and interest resume in the fall
According to the Department of Education, student loan interest will start to accrue on September 1, 2023, with the first loan payments due in October. The exact due date for your first post-forbearance bill may vary, depending on your loan servicer.
Further extensions of the payment pause are not anticipated due to a provision in the debt ceiling deal passed by Congress on June 1, 2023.
Making the transition smoother
President Biden announced a 12-month “on-ramp” transition period from October 1, 2023 through September 30, 2024. This period is designed to ease borrowers back into the payment process, with no penalties for missed payments during this time.
During this transition period, if you can afford to pay your monthly bills, it’s encouraged. However, missed payments won’t result in default or harm to your credit. Despite this leniency, interest will continue to accrue on your loan balance throughout the transition period.
Tips for borrowers
With student loan payments resuming and interest returning, here are some tips to help the transition:
- Update your contact information. Ensure your loan servicer has your current contact information, including your email, phone number, and physical address. This will help to avoid any miscommunication about the resumption of payments.
- Review your loan details. Log into your student loan account and review your outstanding balances, interest rates, and monthly payments. This will give you a clear picture of what to expect when payments resume.
- Contact your loan servicer. Reach out to your loan servicer to discuss your upcoming payments. They can provide information about how much you’ll owe when payments resume, your potential monthly bill, and available payment plans.
- Reauthorize auto-debit payments. If you were previously enrolled in auto-debit for your loan payments, you’ll need to reauthorize this service with your loan servicer.
- Consider an income-driven repayment plan. If you’re concerned about affording your loan payments, consider enrolling in an income-driven repayment (IDR) plan. These plans adjust your monthly payments based on your disposable income, which could make your payments more manageable.
- Explore loan forgiveness programs. There may be existing forgiveness programs you’re eligible for, such as the Public Service Loan Forgiveness and Teacher Loan Forgiveness programs.
Navigating the post-pause landscape
The resumption of student loan payments presents challenges for many borrowers. However, with careful preparation and a solid understanding of your repayment options, you can confidently navigate the transition. Remember to stay updated on the latest developments and contact your loan servicer with any questions.
For information on Best Egg tools and resources that may help give your budget some breathing room as student loan payments resume, click here.