The student loan payment pause has come to an end, and federal student loans began accruing interest again on September 1, 2023. The student loan payment pause was put in place in March 2020 to offer temporary relief to student borrowers affected by the COVID pandemic. Only federal student loans held by the U.S. Department of Education were eligible for the payment pause and interest waiver. Beginning in October of 2023, federal student loan borrowers are expected to resume monthly payments towards debt balances, unless you arrange otherwise through your loan servicer.
What To Expect Now That Student Loan Payments Resume
1. Updates From Your Loan Servicer
During the payment pause, your loan servicer may have changed. They should have already notified you about any modifications to your account. If you haven’t received an email or letter with details about your upcoming payments, it’s essential to contact your loan servicer or log in to your online account to obtain the necessary information about your monthly payment amount and due date.
2. Payments May Not Start Right Away
Generally, the payment due dates will stay the same as it was before the moratorium came into effect. Don’t presume anything though. If the letter from your loan servicer doesn’t specifically mention the date your first payment is due, call them or log into your online account to double-check your payment due date.
3. Autopay Might Not Automatically Resume
Signing up for AutoPay is a smart move since it ensures that your monthly payments go out on time every month. As an added bonus, you also get a .25% reduction on the interest rate when you set up AutoPay. If you had been making payments through AutoPay, that would have stopped when the forbearance came into effect.
This arrangement might not resume automatically when your payments restart. After receiving your loan servicer’s notification with the deadline date, make sure to speak to your bank and set up payments to be transferred directly every month before your payment due date.
4. You’ll Pay the Same Interest Rate You Were Paying Before the Payment Pause Was Announced
Federal student loans typically have fixed interest rates, which means the interest rate does not change with market conditions. Interest rates on federal student loans were set to zero during the payment pause. However, since the waiver has expired, you’ll go back to paying the regular interest rate that you paid before the moratorium. Federal student loan interest began accruing again on September 1st.
5. You May Have a Different Loan Servicer
Many loan servicers ended their contract with the federal government over the past two years. If your loan servicer was among them, you would have received notification of a new entity. Make sure to check who your loan servicer is and get their contact details if you have not done so already.
6. You Have To Start Paying Again
Millions of student borrowers are likely experiencing financial difficulties because of paybacks and unemployment brought about by the prolonged pandemic. If you’re one of those struggling financially, it’s important that you take time to figure out the best course of action regarding student loan repayments.
Regardless of your financial circumstances, those payments are going to be due. You have to pay or arrange a different avenue of repayment. If you miss a payment, you will pay the consequences in the form of a hefty late payment fee and interest on the unpaid amount, which increases your overall debt.
Fortunately, you do have a few options available if you cannot afford your monthly loan repayments.
Exploring Your Options for Federal Student Loan Payment Relief
The federal government has multiple programs in place designed to offer relief to borrowers struggling with payments. If you can’t afford the monthly payments, it’s important to spend time exploring each of the repayment options to see which one is best for you.
1. Income-Driven Repayment Plans
Income-driven repayment plans have been a popular option for financial relief. These plans set your monthly payments to a percentage of your income. If you earn a high income, your monthly payments will be correspondingly higher. If your income drops, so will your monthly payments. This ensures that your payments are always affordable for you.
President Biden also announced a revised pay-as-you-earn plan called SAVE. It is the most affordable repayment plan option for federal student loans. If your income has changed over the past three years, ask your loan servicer to recertify your income so your payments can be adjusted accordingly. You can do this in your online account.
2. Extended Repayment Plans
These plans lower your monthly payments by extending the loan term. The extent to which you can increase your loan term will depend on the amount of outstanding debt. You could get a repayment term of up to 25 years without loan consolidation and up to 30 years with consolidation. Extended repayment plans are completely independent of your income.
3. Economic Hardship Deferment
Economic hardship deferment provides a payment pause for student loan borrowers experiencing severe financial difficulties. Borrowers have to meet certain criteria to qualify for economic hardship deferment. If you meet the requirements, you may be able to defer your payments for up to a total of 3 years.
Keep in mind that the federal government will pay the interest only on subsidized loans during the economic hardship deferment. However, interest will accrue on unsubsidized loans during the deferment period.
4. Unemployment Deferment
Unemployment deferment is available to unemployed federal student loan borrowers who are actively looking for a full-time job but are still unemployed at the time of submitting the application. Borrowers receiving unemployment benefits are also eligible. Unemployment deferment is available in increments of 6 months for up to 3 years, but not in a consecutive stretch. In this case, too, the federal government will pay the interest only on subsidized loans during the unemployment hardship deferment. However, interest will accrue on unsubsidized loans during the deferment period.
Forbearance pauses payments on your student loans. This forbearance is different from the government-mandated forbearance that previously paused student loan interest accrual and payments. If you applied for forbearance after the loan payment pause ended in September, your loans will start accumulating interest through the requested forbearance period. The federal government doesn’t pay interest on any student loans during forbearance. If interest is not paid as it accrues, it will be added to the loan balance at the end of the forbearance period. Forbearance is available for up to 3 years.
6. Consider Refinancing Your Student Loans
In addition to federal options for student loan payment relief, there is another option for potentially lowering your monthly payments—refinancing.
Refinancing means exchanging your current student loan for a new loan. You can choose a more suitable loan term and payment options when you refinance student loans, which can also lower your interest rate. Depending on your loan balance, you could save several thousands of dollars in accrued interest with the lower rate.
If you can’t afford the monthly payments, you can refinance to extend the loan term and lower the monthly payments. On the other hand, you can increase the monthly payments and reduce the loan term if you have the financial flexibility.
Refinancing your federal loans converts them into private loans and you lose all benefits and protections associated with the original federal loan. You should only consider refinancing if you’re absolutely sure you won’t need those protections.
7. Student Loan Consolidation
You can, however, consolidate your student loans through the U.S. Department of Education. This is a great option if you have more than one federal student loan and would like to combine them all into one. This allows you to make only one payment per month instead of several, and you would not have to worry about varying interest rates. You can log into your federal loan servicer portal to apply online.
Any of these are viable options as long as you do not default on your student loan payments. You may pay more in interest by lowering monthly payments but that’s still better than the consequences for defaulting on the loan. Defaulting will cost you in terms of a high late payment fee and interest on the outstanding balance. You’ll also lose access to deferment and forbearance options and could potentially get your wages garnished if you default first.
Choose which repayment option is right for your current financial situation and continue making your payments on time.