The long-standing pause on federal education loan payments and interest, initially implemented at the onset of the global pandemic, is set to be lifted soon. With over three years of reprieve, borrowers are now facing the reality of resuming their loan payments. The situation has been further complicated by the US Supreme Court’s recent ruling on the President’s proposed student loan forgiveness plan. This article provides a comprehensive guide for borrowers navigating the impending resumption of their loan payments.
Also read: How to Apply for Federal Student Loans: A Step-by-Step Guide.
The Context: Student Loan Forgiveness and The Supreme Court
The US Supreme Court was recently expected to deliver its decision on the constitutionality of President Biden’s plan to forgive up to $20,000 in student loan debt per borrower. Regardless of the court’s decision, payments and interest on federal education loans were set to resume after a pause that began more than three years ago with the advent of the COVID-19 pandemic.
The Supreme Court’s ruling, however, struck down the proposed forgiveness plan, leaving borrowers to prepare for the reinstatement of their monthly payments.
The Timeline: When Will Student Loan Payments Resume?
The White House initially announced the resumption of payments under its debt forgiveness program in August 2022, stating that payments would commence in January 2023. However, the timeline was revised due to legal challenges to the plan, extending the moratorium to allow the Supreme Court ample time to reach a decision.
Loan Servicers and Their Role
Loan servicers, the third-party companies contracted by the federal government to manage borrowers’ accounts, will be tasked with restarting billing procedures for millions of customers. The exact date in October when payments will restart depends on which loan servicer is managing your account.
Eligibility: Which Loans Are Affected?
The payment and interest pause applied to all federally held student loans, regardless of the company servicing the loan. Loans eligible for the moratorium included:
- Direct federal student loans.
- Federal Family Education Loan program loans held by the Department of Education (DOE).
- Federal Perkins Loans held by the DOE.
- Defaulted FFEL loans not held by the DOE.
- Defaulted Health Education Assistance loans, or HEAL.
Student loans that didn’t qualify for the moratorium included nondefaulted FFEL and Perkins loans not held by the DOE, nondefaulted HEAL loans, and private student loans.
Preparing for Loan Payments to Resume
With the Supreme Court ruling out the proposed forgiveness plan, borrowers must prepare for the resumption of their loan payments. Here are some steps to help manage the transition:
1. Reestablish Contact with Your Loan Servicer
During the pandemic, some companies exited the student loan business, so your account may now be managed by a different loan servicer. You can locate your loan servicer on the Department of Education’s Student Aid website.
2. Explore Income-Driven Repayment Plans
With three years of payment reprieve, your financial situation may have changed significantly. If you’re struggling to budget for your student loan payments, you might be eligible for an income-driven repayment (IDR) plan. IDR plans typically take longer to pay off but make monthly payments more manageable, helping prevent missed payments or defaults.
3. Check if Your Monthly Balance Has Changed
Your loan servicer may recalculate your monthly payment based on your current balance and the remaining repayment schedule if you’re on a traditional repayment plan. If you’re on an IDR plan, payments will typically revert to what they were before the pause, unless you’ve switched plans or recertified.
The Role of the Supreme Court
The Supreme Court’s decision has a significant impact on borrowers, particularly those hoping for some degree of debt cancellation. While the court’s ruling against the proposed forgiveness plan was disappointing for many, borrowers should be aware of other debt relief programs under the Biden administration that could potentially help make their payments more affordable or even get them closer to loan cancellation.
Payment Pause Lifting: Key Dates and Actions
As part of the debt ceiling deal struck by the White House, federal student loan payments paused during the pandemic will be due starting in October 2023. Interest on those loans resumes in September 2023. Moreover, the deal stipulated that the President can’t extend forbearance again.
Borrowers should visit the Federal Student Aid (FSA) website to find out who their loan servicer is and their monthly payment amounts. It’s also crucial to ensure your contact information is correct on both your loan servicer’s website and in your StudentAid.gov profile to receive notifications from the Education Department.
Auto-Debit Payments
Auto-debit payments may not restart automatically for most borrowers, so it’s essential to confirm your auto-debit enrollment before payments resume.
Loan Simulator Tool
The FSA recommends that borrowers use its Loan Simulator tool to find a repayment plan that fits their financial needs. Borrowers may also want to consider applying for an income-driven repayment (IDR) plan.
Fresh Start Program for Default Borrowers
Default borrowers should get their loans in current status using the government’s Fresh Start program to stop collections and wage garnishments when payments resume. The deadline to apply for Fresh Start is December 31, 2023. Default borrowers who sign up for the Fresh Start program can move from their default loan servicer to a regular loan servicer, making them eligible for forbearance, deferment, and income-driven repayment plans.
One-Time Adjustment
In addition to these measures, some borrowers will benefit from a one-time payment adjustment, which is distinct from the Supreme Court’s decision. This adjustment, announced last year by the Education Department, will count certain months toward student loan discharge that were previously ineligible under income-driven repayment plans.
Around 3.6 million borrowers will receive at least three years of credit toward discharge as a result, according to Federal Student Aid. The adjustment will occur automatically, unless your loans are in default or you have commercially-held FFEL loans. Those with commercially-held FFEL loans must consolidate those loans with Federal Student Aid (FSA) by December 31, 2023, to be eligible for the one-time adjustment.
New Income-Driven Repayment Plan
Last year, the President also announced plans to reform income-driven repayment plans. The key changes would reduce monthly payments, prevent ballooning balances, and provide loan forgiveness after 10 years of making payments instead of the 20 or 25 years under current IDR plans.
The resumption of student loan payments is a significant change for millions of borrowers. By understanding the timeline, exploring repayment options, and keeping up with the latest news, borrowers can better navigate this transition and manage their financial obligations.
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