Last month, the Supreme Court struck down President Biden’s student loan forgiveness plan, effectively ending the pause on payments.
Payments have been on hold since the pandemic started in March 2020, and have been pushed back multiple times. But now, those payments will go back into effect in October.
Here’s what you need to know before student loan payments resume:
Student loan payments resuming: What happens now?
During the moratorium, student loan interest rates were set to zero. As of Sep. 1, interest rates will revert back to the levels they were at before the pause. The first payments will be due in October.
Borrowers are supposed to receive an advance warning email from the loan servicer at least 21 days before their payment is due, so keep an eye out for that if you still owe money on your loans. The email will include the payment date and amount due.
Is student loan forgiveness still possible?
President Biden has announced that they will continue to pursue different avenues to offer that in the future. That being said, we have no idea if or when that could happen, so borrowers should expect to pay back their loans.
However, there are other ways to have your student loans forgiven, depending on your circumstances.
For example, if you are a physician, nurse or other medical professional, or work for the government or a nonprofit, you may be eligible for Public Service Loan Forgiveness (PSLF.) The qualifications are that you are employed by a qualifying not-for-profit organization, and you have a Direct Loan.
This program forgives the remaining balance on your Direct Loan after 120 qualifying monthly payments while working full time for a qualifying employer.
There are also loan forgiveness options available for teachers who work in low-income schools.
Student loan payments resuming: What about payment plans?
There will be payment plans available for student loans, including a new 12 month “on-ramp” system, where borrowers who miss payments will not be considered delinquent, placed in default, or referred to collections for 12 months.
The other payment plans available include:
- Standard 10 Year – Your monthly payments are fixed and determined by a 10 year repayment period.
- Graduated payments – This option allows borrowers to start at a smaller monthly payment, and increase the amount over time. The time horizon is still typically 10 years.
- Extended repayment – Some borrowers may be eligible to make smaller monthly payments for an extended repayment, which can be up to 25 years.
- Income based/income contingent – An income-based repayment plan factors in your income, and adjusts monthly payment amounts accordingly. There are multiple plans that fall under this category, Revised Pay As You Earn Repayment Plan (REPAYE,) which is soon to be the new SAVE plan, Pay As You Earn Repayment Plan (PAYE,) Income-Based Repayment Plan (IBR,) Income-Contingent Repayment Plan (ICR) and the Income-Sensitive Repayment Plan.
- The Saving on a Valuable Education (SAVE) – This plan replaces the Revised Pay As You Earn (REPAYE) Plan. Anyone using the REPAYE plan will be automatically enrolled in the SAVE plan. This is an income-driven repayment plan that increases the income exemption and eliminates 100 percent of remaining interest. Read more about the plan and how to enroll here.
Preparing to pay your student loans
If you still owe money on your student loans, now is the time to get prepared.
For many people, they haven’t factored student loan payments into their budgets for more than three years. During that time, inflation has increased and credit card debt has reached a record high. So if people don’t prepare now, those extra payments might be tough to manage.
Here are some things you can do to get ready to pay your loans:
- Start setting aside money now. Try to adjust your budget to make room for those payments, and save up a couple months’ worth of payments, if you can. That will help ease the transition as payments kick back in.
- Get familiar with the logistics. For millions of Americans, their student loan servicer changed during the moratorium. Check out StudentAid.gov’s list of what you need to do to prepare for loan payments to resume.
About Your Richest Life
At Your Richest Life, physician-focused financial planner Katie Brewer, CFP®, wants to help you build a successful financial future. For more information on the services offered, contact Katie today.
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