What began as a pandemic-related response to assist student loan borrowers in March 2020, resulted in federal student loan payments and interest being paused for over three years. After eight extensions, the US Department of Education has announced that the student loan payment pause will come to an end this Fall, with interest resuming as of September 1, 2023, and payments coming due as of October 2023. Additionally, after months of uncertainty, the Supreme Court finally struck down the student loan debt relief plan that President Biden proposed in August 2022 and would have forgiven up to $20,000 for low- and middle-income borrowers.
Both of these major developments in the world of federal student loans have left many borrowers wondering how to quickly recalibrate their budgets to make monthly payments again, while recent graduates may be wondering how to set up student loan payment for the first time.
However, many borrowers will have other potential pathways to full or partial forgiveness available to them, regardless of their student loan debt amount and employment type. “Even with the SCOTUS decision, there are still other paths to federal student loan forgiveness through government programs such as Public Service Loan Forgiveness (PSLF) and Income-driven Repayment (IDR),” said Chris Walters, head of GradFin. “IDR – which calculates your monthly payment amount based on factors like adjusted gross income and family size – will be the path forward for most borrowers, and can forgive your remaining student loan balance after 20 or 25 years of repayment.”
Let’s take a closer look at how borrowers can prepare, the latest status of federal student loan forgiveness programs, and how to start saving for the new financial reality ahead.
As you prepare for payments to resume, make sure you understand your current loans, including the type of federal student loans you have, your current balance, the type of plan, and who your current loan servicer is – since this may have changed. Be sure to update your contact information on your loan servicer’s profile and in your StudentAid.gov profile. Also keep in mind, if you had enrolled in any automatic debit payments, you’ll need to contact your loan servicer directly to re-enroll or set up autopay for the first time.
After you’ve gotten up-to-date on how much you owe and any changes related to your account, you can determine your next steps. While the landscape of options may seem complicated, you’ll want to refamiliarize yourself with your current repayment plan to make sure you’re enrolled in the right plan for your current circumstances. Are you enrolled in a Standard Repayment Plan or are you eligible for an income-driven repayment (IDR) plan? For many borrowers, an IDR plan could make your monthly payments more affordable, depending on your income and family size; learn more below.
Our student loan specialists can also help you evaluate your IDR plan options based on your personal circumstances. Learn more here.
For eligible federal borrowers, past periods of repayment, deferment, and forbearance could now count toward IDR forgiveness with this one-time payment count adjustment. Some borrowers will need to apply for a Direct Consolidation Loan by the end of 2023 to get the full benefits of this program. To learn more, schedule a free call with a GradFin student loan specialist.1
Since 2020, there have been significant changes to loan servicers that will potentially impact borrowers. First, make sure you know your current loan servicer, since this may have changed during the pause. According to a recent Consumer Financial Protection Bureau (CFPB) report, over 40% of student loan borrowers will have a different loan servicer than the one they had prior to the payment pause. To confirm your current student loan servicer, you can log in to your studentaid.gov profile, visit your account dashboard and scroll down to the “My Loan Servicers” section.
Now, let’s look at how IDR plans could help you manage your monthly payments and some proposed changes that could make an IDR plan even more affordable for borrowers.
If you’re having difficulty making your monthly student loan payments, then income-driven repayment (IDR) plans may be a good option to explore before payments resume. The IDR program consists of multiple plans that provide federal borrowers with options other than forbearance:
*Only new enrollments from borrowers of consolidated Parent PLUS loans are being accepted into the ICR plan. No change for current enrollees.
**New enrollments in PAYE are being accepted until further notice, but this plan will eventually be phased out. No changes for current enrollees.
IDR plans use various formulas to calculate your monthly payments based on your adjusted gross income and family size, and also provides a path to eventual forgiveness. Many federal student loan borrowers will likely qualify for more than one type of IDR plan as well. For more details on IDR plans, visit studentaid.gov or check out the pros and cons of IDR plans here. Or learn about how to apply for student loan forgiveness here.
There are currently proposed changes to the PSLF and IDR programs that could change eligibility, requirements, and potentially the amount of money you could save. For more information, visit studentaid.gov or schedule a consultation with a GradFin student loan specialist.
In addition to IDR plans, for those working in the public sector, Public Service Loan Forgiveness (PSLF) could offer another potential path to student loan forgiveness.
The Public Service Loan Forgiveness (PSLF) program is available to borrowers employed by government entities (federal, state or local), or qualifying not-for-profit organizations, and allows them to qualify for student loan forgiveness after ten years of qualifying income-driven payments, entirely tax-free. Note that being enrolled in an income-driven repayment (IDR) plan is also a requirement for PSLF.
The qualifications for PSLF include:
You must be employed full-time at a US government organization at any level (federal, state, local, or tribal) – including US military service – or a qualifying nonprofit organization. Full-time employment is currently defined as a minimum of 30 hours per week.
Borrowers should have Federal Direct Loans. Or, borrowers with other types of federal loans, such as FFEL, Perkins, or HEAL loans, may be able to apply for a Direct Consolidation Loan. Learn more at studentaid.gov/consolidation.
Participants will need to make 120 on-time qualifying payments over ten years to qualify for PSLF forgiveness of any remaining balance. These payments do not need to be consecutive, so if you worked in the private sector for a period of time and then returned to public service you could pick up where you left off.
To find out if you can qualify and learn how to stay on track for PSLF, talk to a student loan specialist today.
If your bills have changed or increased since the payment pause began, you’re not alone. According to a March 2023 report by the Consumer Financial Protection Bureau’s (CFPB), 50% of all student loan borrowers expected to return to repayment have scheduled monthly payments for non-student loan or non-mortgage debts that are at least 10 percent higher than they were before the payment pause began. While these economic challenges may seem daunting, with the right preparation and budgeting, you can still create a path to manage your student loans.
To prepare, you’ll want to review your current budget as you get ready to resume monthly payments. It may be a good time to track and review your overall monthly budget and see if there is any non-essential spending you can reduce, such as unused subscriptions. We recommend the 50-30-20 budget method for a quick view of your expenses. In the months leading up to your first payment, you could consider transferring your expected monthly payment to a savings account, which will also help you build up an additional cushion. While higher interest rates are leading to increased costs in other areas, a high yield savings account allows you to benefit from today’s higher rates. See how to make the most of your savings with competitive rates on a High Yield Savings account from Laurel Road, with zero costs to open and no minimum balance required.
If the past few years are any indication, the student loan repayment environment will continue to evolve and be a topic of debate. In fact, the Biden administration has already announced new actions to provide debt relief and support federal student loan borrowers. With so many recent changes, borrowers may have more questions than answers about their student loan options.
If you’re looking to understand your repayment plan options, want to change to an IDR plan, or are considering pursuing student loan forgiveness, you can reach out to one of our student loan specialists to create a personalized plan. Our GradFin team has helped borrowers qualify for an average of $110k in student loan forgiveness2 and can help you understand your eligibility, determine which plan is right for you, and estimate your potential forgiveness if you’re eligible.
Our specialists can evaluate your personal circumstances and repayment options, and keep you updated with the latest federal program updates, including any new repayment or forgiveness changes. Get a head-start to understand your options today with a free 30-minute consultation.
No matter what your path is, it’s important to make sure you understand all your current options, including what has changed when it comes to your loans or loan servicer. Now is the time to plan ahead and evaluate your budget before that first payment comes due this Fall.
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To qualify for PSLF, you must be employed by a U.S. federal, state, local, or tribal government or not-for-profit organization (federal service includes U.S. military service); work full-time for that agency or organization; have Direct Loans (or consolidate other federal student loans into a Direct Loan); repay your loans under an income-driven repayment plan; and make 120 qualifying payments. For full program requirements, visit: https://studentaid.gov/manage-loans/forgiveness-cancellation/public-service.
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