Student Loan Repayment Set to Restart As Mass Forgiveness Plan Thrown Out
After more than three years of pause, federal student loan borrowers will be required to resume making repayments this fall.
Payments on federally held student loans had been optional since March 2020 as part of relief measures made during the COVID-19 pandemic. But repayment will return to normal in September, with the first bills coming due in October.
All borrowers are expected to receive notice from their student loan servicers.
Resuming repayment may be all the more difficult for some after plans for mass student loan forgiveness of up to $20,000 per person were struck down by the Supreme Court at the end of June.
If you don’t feel ready to face the return of student loan payments (or even if you do), here are some actions you can take to prepare.
- 1. Replenish your emergency fund, if you can
- 2. Rehabilitate any loans in default
- 3. Adjust your repayment plan
- 4. Investigate some of the new forgiveness opportunities
- 5. Review deferment and forbearance options
- 6. Explore non-federal government support
- 7. Touch base with your loan servicer
- 8. Consider student loan refinancing
1. Replenish your emergency fund, if you can
While the penalty-free student loan interest freeze remains in effect for the next couple of months, refilling your rainy day fund should be a priority. This way, you’ll have a cushion in case you need to dip back into the fund to afford loan payments down the road.
Generally, it’s wise to carry three to six months’ worth of expenses in your accessible savings account. With the future of the unemployment rate uncertain, though, the more savings you sock away, the better off you’ll be.
2. Rehabilitate any loans in default before collections resume
The student loan repayment freeze carried additional relief for federal student loan borrowers in default: a halt to collections and garnishments of wages and other monetary benefits. The Department of Education has also said it would refund $1.8 billion worth of recent seizures.
To avoid such penalties in the future, strategize how to get your loans out of default. Your options for federally owned debt include the following:
|What to know||Pros||Cons|
Make nine payments within 10 months, with the payment amount equal to 15% of your discretionary income
Monthly payment amount could be as low as $5, depending on your income
Collections could continue until you've made all nine payments
Removes the record of your default from your credit history, likely boosting your credit score
Rehabilitation is a one-time opportunity
|Direct loan consolidation|
Consolidate one or more federal loans into a new loan. You can agree to repay it on an income-driven repayment plan, or else make three straight, timely payments before consolidation occurs
Consolidation not possible until wage garnishment is lifted
Won't immediately remove the default from your credit report
|Payment in full|
If you have the cash to do it, zero out your balance
Not practical for most borrowers
3. Adjust your repayment plan or monthly dues, if necessary
Enrolling in an income-driven repayment plan could make your payments more affordable once the student loan freeze ends. IDR plans limit your monthly dues to 10% to 20% of your discretionary income, also accounting for your family size.
And you don’t have to wait until January or February to enroll. In fact, you can review your IDR options at any time — the government’s loan simulator tool could help you decide. After choosing the best repayment option for your situation, you can apply in 10 minutes, free of charge.
If you’re already repaying your debt via an IDR plan but have seen a decrease in household earnings (or an increase in family size), you could recalculate your monthly dues via studentaid.gov.
4. Investigate some of the new forgiveness opportunities
Federal student loans are eligible for a wide variety of forgiveness programs — you can check out our in-depth forgiveness guide for more details.
But even if you’re familiar with these opportunities, you might not be aware of some new ways to lessen or wipe away your student debt balance. For example, the Department of Education has proposed a new income-driven repayment (IDR) plan that would allow for full forgiveness after only 10 years, down from the 20 to 25 years currently available (depending on which IDR plan you join).
It would also cut the minimum monthly student loan payment to 5% of a borrower’s discretionary income — down from 10% currently — and would alter the definition of discretionary income to protect more of the borrower’s earnings.
And perhaps most importantly, the loans would become interest-free, so long as the borrower remains current on their repayment.
At the same time, the government has made Public Service Loan Forgiveness (PSLF) easier to qualify for. Under PSLF, you can get your remaining student loan balance forgiven after 10 years of repayment made while working for a nonprofit organization or government agency. You can check out the Federal Student Aid PSLF tool to see if you qualify.
5. Review other options to pause repayment
If you don’t have the funds to resume repayment, know that there are all sorts of deferment and forbearance options, including:
|Unemployment deferment||Up to three years||If you're out of work|
|Economic hardship deferment||Up to three years||If you're receiving welfare benefits, earning especially low income or serving in the Peace Corps|
|General forbearance||Up to 12 months at a time for a maximum of three years||Granted at your loan servicer's discretion based on your financial challenges, medical expenses, employment or other factors|
|Student loan debt burden forbearance||Up to 12 months at a time for a maximum of three years||If your monthly federal loan dues are greater than 20% of your gross income|
Unlike the special administrative forbearance awarded to most federal loan borrowers in March, the above options…
- …must be applied for and are never automatically granted.
- accrue and capitalize interest in most cases, except on subsidized loans and Perkins loans during a deferment.
- …can be reported to the credit bureaus and possibly affect your credit score.
6. Explore non-federal forms of loan relief
When the federal loan suspension ends, other support options will still exist.
So, if IDR and interest-accruing postponements like deferment and forbearance aren’t enough — or if you have private student loans to tend to, as well — consider the following moves:
- Seek out state government student loan aid
- Write to your elected representatives when these local programs aren’t enough
- Talk to your employer about student loan relief benefits
- Along the way, be wary of coronavirus-related student loan scams promising help for a fee
7. Maintain communication with your loan servicer
If you don’t remember the last time you checked in on your debt repayment options, track down your federal loan servicer, and ask for assistance when you need it.
With a host of new loan servicers having come online since the start of the repayment freeze, you may also find that your debt was transferred, so be sure to check. And while you’re at it, ensure that your servicer has your most up-to-date contact information.
8. Consider student loan refinancing
Generally, it’s a bad idea to refinance federal student loans — by turning the loans private, you’ll lose access to federal loan protections like IDR, deferment and forbearance and forgiveness programs.
However, there are some exceptions. If you’re near the end of your repayment and can find a refinancing loan with a lower interest rate than what you’re paying (which is more likely if you have a PLUS loan), then it could make sense. In this case, you’ll want to shop around — perhaps by starting with our list of preferred lenders.
But if you do have a long way to go before retiring your student debt — and might have trouble affording repayment at some point — you should be careful of taking your federal loans private.