Federal Student Loans: What is going on and what do I need to know?

BY SAMANTHA VICCHAIRELLI, ASSOCIATE ADVISOR, ALEXIS ADVISORS

There is so much information swirling around about pending updates to student loans. It’s enough to make your head spin! The Federal Student Loan pause, which was originally expected to last 6 months, has been extended multiple times over the last 3.5 years. This pause is about to come to an end. Let’s break down some facts and steps you need to take to prepare.

Key dates to know:

• September 1, 2023: Federal Student Loan interest is going to start accruing.
• October 2023: Payments will resume. You will receive your bill at least 21 days before it is due.

Steps to take to prepare:

• Update your contact information on StudentAid.gov and with your loan servicer.
  This is especially important if you have moved in the past 3 years as your contact information may have changed. In addition, 30 million borrowers will have a new loan servicer than they had when the pause began because many loan servicers have exited the industry. You can find out who your loan servicers are by logging in to StudentAid.Gov and viewing your “My Aid” page. Keep in mind, that it is possible you may have more than one loan servicer depending on the types of loans you have. It is also important that you update your contact information on all loan servicers’ websites so your loan servicer knows how to reach you.

• Use the StudentAid.gov Loan Simulator to determine your best payment plan.
  If your income or family size has changed it is especially important to review your payment plan options to find the plan that suits your needs. For the amount to be correctly reflected on your first bill you must choose your payment plan before the bills are issued.
  
  Note: The Biden administration also introduced a new plan called the Saving on Valuable Education (SAVE) plan which utilizes a different payment formula than other Income Driven Repayment plans. If you were enrolled in the REPAYE plan you will automatically be converted to the SAVE plan. Other borrowers will have to use the loan simulator to determine if the SAVE plan is the best option for you.

• Recertify for Income Driven Repayment Plans (IDR)
  If you were on an IDR before the payment pause you have 6 months to recertify your income after the pause ends. If your income has decreased or your family size has increased since you last recertified back in 2019, you should recertify to see if you can lower your payment. You can request a recalculation of your payments any time your financial situation changes.

• Verify that your automatic payments are authorized to begin in October.
  You may have to reenroll in the auto-pay program even if your loan servicer has not changed. If you choose an autopay program, you can save 0.25% on your interest rate. You can enroll in autopay through your loan servicer’s website.

• If you are eligible for Public Service Loan Forgiveness, be sure to recertify.
  You only get credit towards PSLF through the date of your most recent certification. You should recertify annually to make sure you are continuing to get credit toward PSLF.

• Review your budget to prepare for these payments.
  For many borrowers, the money you used to allocate towards your student loan payments has been absorbed by increased living expenses. It is important to review your monthly spending and develop a budget so you can prepare before your payments resume.

What if I can’t pay yet?

The Biden Administration is implementing a 12-month “on-ramp” to repayment for those unable to pay and to protect borrowers from the consequences of being unable to make payments. This “on-ramp” is temporary, only continuing until September 30, 2024. During this period, borrowers are protected from delinquency due to non-payment reported on their credit report and won’t be considered delinquent or in default.

However, payments are still due, and interest will continue to accrue during this period.

While these delinquencies are not reported to the credit reporting agencies, some credit scoring companies can still factor in these missed payments.  Additionally, these missed payments will also not count towards student loan forgiveness if you are on an Income Driven Repayment plan or eligible for the Public Service Loan Forgiveness program.

Before skipping these payments, we strongly recommend reaching out to StudentAid.Gov to get clarity on the consequences of missed payments and to evaluate your repayment options.

For many borrowers, these student loan payments are going to have a large impact on your monthly budget. By taking steps early to evaluate your payment plan options you can prepare for this expense and make sure you are ready when payments resume in October.