Student Loan Repayment Returns: 5 Steps for Borrowers

In March 2020, the government hit pause on federal student loan repayment, placing loans in forbearance, and enabling borrowers to skip their payments with no late fees, additional interest, or negative effect on credit scores. The purpose of the student loan payment pause was to support Americans affected by the COVID-19 pandemic. Congress recently passed a law preventing further extension of the payment pause, which means student loan interest will resume starting on September 1, 2023, and payments will be due starting in October. In addition, President Biden proposed a debt forgiveness plan that would have cancelled up to $20,000 in federal loans for eligible borrowers, but it was recently struck down by the Supreme Court.

If you or anyone in your family has federal student loans, you will likely be affected when payments restart. If further debt cancellation plans emerge, this might have an impact, too. Here are five steps to take in preparation for what’s coming next.

Step 1: Contact Your Student Loan Servicer

It’s critical that your student loan servicer—in other words, the company that manages your student loans—is able to find you. Check out StudentAid.gov to get the details for your student loan servicer and let them know your up-to-date contact information, including your address, email and phone number. This is also a good time to review your current interest rate and payment plan. Keep in mind that loan servicers are expecting a large amount of phone and email traffic over the next few months, so aim to get in touch sooner rather than later.

Step 2: Make a Payment Plan

Adding a student loan payment into your monthly budget is no small task. If you don’t already have a household budget, now is the time to start! Planning out how much money is coming and going from your accounts each month will help to ensure you don’t miss any payments, which could result in late fees, negative effects on your credit score, and wage garnishment if your loan goes into default. It’s always a good idea to set up automatic payments from a bank account, this way you’ll never miss a payment. Your servicer can help you set this up. And, remember that if you previously used automated payments, you’ll need to opt back into this service.

HUECU's personal finance program, Thrive, has many great resources to help you create a successful budget. From worksheets to free webinars, our award-winning personal finance education is a useful tool when it comes to planning for your finances!

Step 3: Keep Up With the News

Although the Supreme court didn’t rule in favor of President Biden’s debt cancellation plan, the Secretary of Education initiated a process that opens an alternative path for debt relief, so check the news to stay up to date. In addition, a new income-driven repayment option, The Saving on a Valuable Education (SAVE) plan, has been finalized by the Education Department and will be available this Summer. SAVE provides the lowest monthly payments of any income driven repayment plan, and calculates your payment amount based upon your income and family size. If you’re interested in learning more about income-driven repayment, check out StudentAid.gov for more information.

Step 4: Investigate Your Options

Many people struggle to stay on top of student loan payments, especially after a long period of not incorporating this obligation into their usual spending habits. If you suspect that making monthly student loan payments will be a struggle, investigate your options now. There are a variety of forbearance and deferment options to temporarily suspend payments, and income-driven repayment plans that may lower your monthly payment; visit StudentAid.gov to explore which options might work best for you.

Some good news is that borrowers who were previously in default have the opportunity to receive a clean slate, thanks to the federal government’s Fresh Start program. However, the benefits of Fresh Start aren’t available automatically—so be sure to sign up online. If you qualify, the program will remove defaulted loans from your credit report and transfer then back to an “in repayment” status. Then, keep making your payments as scheduled to ensure this clean slate remains!

Step 5: Speak With an Expert

It’s natural to be confused about the current student loan landscape. If you need help understanding what it all means for you and your finances, speak with an expert. Your student loan servicer is the best resource for information on your loans, but you can also get in touch with non-profits organizations like The Institute of Student Loan Advisors (TISLA) - they offer free advice and dispute resolution to all student loan borrowers who need help. You can also visit Federal Student Aid, an office of the Department of Education for up-to-date information about resuming federal loan payments, repayment options, forgiveness, and COVID 19 emergency relief.