Will federal student loan payments restart? Here’s how to prepare
With just over a week until federal student loan payments are slated to resume, borrowers should take a few steps to ensure that they don’t miss a payment.
It’s still not clear whether loan payments will restart on Sept. 1 (and if you got an email notification that a payment is due, that was reportedly an error). President Joe Biden could still announce an extension of the student loan payment pause, which has been in place since the start of the COVID-19 pandemic.
But given how soon the pause will lapse, financial advisers and other experts are encouraging the roughly 43 million federal borrowers to prepare for repayment.
Here are a few things to do now, whether student loan payments restart Sept. 1 or sometime in the future.
1. Update your contact info
A lot can happen in two and a half years. You need to log into your Federal Student Aid (FSA) account and make sure that all of the information is up-to-date.
While you’re there, check which company is servicing your loans, as millions of borrowers have had their loans transferred to new payment companies since they last made a payment. You can find who your servicer is—some of the companies include FedLoan, Mohela, Nelnet, and Great Lakes Educational Loan Services—by going to the “My Aid” section of the FSA website, and then clicking “View loan servicer details.”
2. See how much you owe
If you’re part of the 82% of federal borrowers who haven’t made a student loan payment since the pause began, you’ll want to log into your account to see how much you will owe each month and work it into any budget you use, says Josh Simpson, a Florida-based financial adviser. You should also be able to view your bill’s due date.
3. Consider a new repayment plan
If you find you can’t afford the monthly payment, then you can enroll in a different type of repayment plan.
An income-driven repayment (IDR) plan bases your monthly payment on how much money you make. This can be helpful for those who don’t have a lot of wiggle room in their budget, because payments can be as low as $0 a month. That said, interest continues to accrue, so make the calculation carefully.
4. Enroll in autopay
If you can afford your monthly bill, then consider enrolling in autopay so you don’t miss any payments.
Not only will you avoid missing a payment, but you’ll also save on interest: All federal loan servicers (and many private lenders) discount your interest rate by 0.25% when you enroll in automatic payments, saving you potentially hundreds of dollars in interest over the life of the loan.
If you were enrolled in autopay before the pandemic pause, don’t assume that this will pick up when payments resume. If you haven’t made a payment in two and a half years, you’ll need to opt back in.
5. Check your loan status
If you were in default before the start of the pandemic, then you may be able to apply to be put in good standing when payments resume.
That’s due to the so-called Fresh Start program, an effort by the Biden administration to bring approximately 7.5 million borrowers out of default. Doing so will enable these borrowers to regain access to payment options like income-driven repayment plans, to get back on track for forgiveness, and to avoid collection efforts, including wage garnishments and fees.
Once the program officially launches, defaulted borrowers will be able to choose a new repayment plan at MyEdDebt.Ed.Gov. At that point, the loans will be transferred from Maximus, the servicer that handles defaulted student loans, to a new loan servicer, according to a fact sheet from the Department of Education.
After the transfer, the default status will be removed from the borrower’s credit reports. Borrowers have one year from when the payment pause ends to apply for a new payment plan.
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